* Wermuth Asset Management says Russia deserves discount
* Portfolio manager says oil taxation hampering growth
* Favours metals, coal as global industry improves
By John Bowker
MOSCOW, Oct 25 (Reuters) - Russia needs major structural reforms and closer integration with the world economy if it is to erase its long held discount to its global peers, the chief fund manager at Moscow's Wermuth Asset Management said.
"Russia is the least expensive of any easily invested index in the world ... but it deserves that discount. Russia has proven a very risky market," said John Winsell Davies, the new portfolio manager of Wermuth's flagship Greater Europe Fund.
He told Reuters Russia should cut the level of tax on domestic oil producers so they invest in new greenfield projects, while corporate battles featuring foreign companies such as BP, Shell and Norway's Telenor have been a further deterrent for investors.
However, he added Russia's greater integration with the global economy, such as possible entry to the World Trade Organisation (WTO), coupled with political reforms could improve the perception.
"When this happens we see the possibility of powerful moves in terms of revaluation, growth and investment of foreign capital," he said.
"It is impossible to make a lot of money in a seamlessly managed market like Switzerland. You need challenges in front of you that require changes. These things can improve -- that is when you can make money," he added.
Russia's dollar-based stockmarket RTS is up 11 percent in the year to date but a widely anticipated sharper rise has yet to materialise.
CHINA, METALS AND COAL
Wermuth, which has around $320 million under management, hired Winsell Davies in May from offshore investment group Diamond Capital Advisers, following a sluggish start to the year, when the firm lost ground compared to a stellar 2009.
The fund returned a massive 222 percent growth last year, compared to a 129 percent gain for Russia's dollar-based RTS index, and is now up around 15 percent in 2010 to date.
Winsell Davies, who has also worked in Moscow for Mikhail Fridman's Alfa Group, said he currently favoured metals, coal and financials among Russian stocks -- anything that would benefit from an upturn in global industrial activity.
He said these choices reflected a view that the global economic recovery was currently in an industrial phase driven by China, while the consumer side remains too expensive.
"The China story is still very much intact, and Russia is the single largest exporter of materials, commodities to China," Winsell Davies said.
He said his fund management model was multi-asset class and cross border, with the main condition being that investments could be linked to economic expansion of the former Soviet Union.
Winsell Davis said he favoured emerging market currencies including the rouble, which he said was undervalued. (Editing by Karen Foster)