By Michael Stott
MOSCOW, Sept 12 (Reuters) - Russia's near-pariah status among investors means its stocks sell at big discounts to other emerging nations, but markets could be missing something -- the global macroeconomic picture may yet favour Moscow.
That's the view of the Russia optimists, who say the country's poor image abroad and its patchy record on fighting corruption, protecting property rights and modernising the economy overshadows some fundamental attractions.
"Everybody hates the damn place," said Jim O'Neill, the recently named chairman of Goldman Sachs Asset Management. "So it takes a lot of bad news for Russia to disappoint".
But O'Neill told Reuters Insider TV he was intrigued by the notion that Prime Minister Vladimir Putin and President Dmitry Medvedev may be making progress on tackling some of Russia's big structural challenges.
Medvedev has made the modernisation of Russia's resource- dependent economy a key theme. He has promised a new future based on technology and innovation, though critics say results during the first half of his presidency have been meagre.
Investor hopes in the near term centre on fresh progress in Russia's long-running application to join the World Trade Organisation and on an initiative -- led by widely respected former Kremlin administration chief Alexander Voloshin -- to make Moscow a more attractive regional financial centre.
Precisely because expectations are so low, any positive news on these projects could help propel Russian stocks from their deep discount to BRIC peers to a rating which better reflects the prospects for a middle-income, moderately high-growth country well endowed with natural resources.
EXCEPTIONAL OPPORTUNITY
"Russia constitutes an exceptional trading opportunity," said Eric Kraus, global adviser at Moscow investment bank Otkritie and a long-time Russia expert in a presentation to investors at a Vancouver investment conference over the summer.
"Not because it is so perfect -- it is a long way from perfect -- but because I can find few places where foreign perceptions deviate quite so far from the reality."
Leading Russian business chiefs, bankers and officials will discuss the outlook for investment in Russia and progress on its modernisation at the fourth Reuters Russia Investment Summit from Sept. 13-15 in a series of exclusive interviews.
For now, the country's political outlook appears stable.
Prime Minister Vladimir Putin enjoys a close, trusting and efficient working relationship with President Dmitry Medvedev, his junior partner in the ruling "tandem".
The pair face parliamentary elections next year and presidential elections in 2012, when Putin is widely expected to return to the Kremlin and shunt Medvedev into a lesser role.
Most political analysts say the "tandem"'s basic policies -- which are closely aligned to the interests of the ruling elite -- will not change significantly whether Putin or Medvedev is president after 2012.
But the immediate economic signals are less rosy.
Economists are revising down growth forecasts for the second half after a disappointing summer, inflation is pushing upwards as a drought pumps up food prices and investment is low as Russian companies struggle to access dollar financing.
Reuters latest poll of economists at the end of August found an average forecast of 4.2 percent GDP growth this year, slowing to below 4 percent in the first half of 2011.
As ever, oil and commodity prices are key, and here the signals may be more positive.
Russia's benchmark Urals blend crude closed on Friday at $77.69 per barrel, more than double the lows plumbed at the end of 2008 and a healthy level for government revenues.
ANOTHER BOOM
The relative strength of the oil price has been a big factor this year in keeping the rouble trading in a band between 29 and 32 to the dollar. It closed at 30.91 on Friday and Moscow analysts expect it to stay in this range for the next 18 months.
Roland Nash, chief strategist at Moscow investment bank Renaissance Capital, believes the Russian economy may disappoint in the second half of 2010 as the effects of a fierce heatwave and fears of another global recession take their toll.
But he remains optimistic in the medium term, expecting another boom in the next few years.
"Russia looks quite likely to find itself in the right place at the right time," Nash wrote in a research note this week.
"A slow developed world recovery generating low global interest rates and a fast developing world recovery producing gradually rising commodity prices is a perfect global macroeconomic backdrop for Russia."
Whether or not this will allow Russia to cast off its status as a high-beta play on global markets and win a repricing on its fundamentals remains to be seen.
Moscow's RTS index closed on Friday at 1,487, down 11.2 percent from its year-high in mid-April and way below the peak of 2,498 it reached in May 2008.
"The Russian equity market and the rouble remain hostage to global trends and are not likely to significantly outperform or underperform until global markets break out of the summer trading range," said Uralsib strategist Chris Weafer in a note.
Rival Moscow brokerage Troika Dialog is prosaic, focusing on the risks that Russia will prove unable to deliver on economic modernisation and reform.
"The most likely scenario for Russia is a sort of cynical muddle-through in the medium term, which will enable the country to deliver around 4-5 percent economic growth, not bad compared to many other countries but more moderate relative to the past decade's results," it wrote in its latest Economic Monthly. (Editing by David Holmes)