LONDON, Sept 19 (Reuters) - Emerging markets veteran John-Paul Smith, known for predicting Russia’s 1998 crisis, plans to highlight the sector’s corporate governance problems in his latest venture as an independent consultant.
Smith, who left Deutsche Bank this month after a four-year stint, is also known for his bearish call on emerging equities at the end of 2010, before the sector significantly underperformed U.S. stocks from 2011 to 2013.
His consultancy, Eclectic Strategy, will provide advisory services on emerging markets to clients, while maintaining a website also accessible to non-professional investors. The aim is to provide advice that he says would benefit from being from “neither a buy- nor sell-side perspective”.
A major reason for Smith’s bearishness on emerging markets is the increasing role of governments in business across the developing world, usually via holdings in listed companies which are then used to further the state’s policy objectives.
“One thing I want to promote is a broader awareness of more substantive governance issues and the risks investors face. That’s something investors have paid too little attention to in the past,” Smith, 53, told Reuters, singling out China and Russia as the biggest culprits.
These issues have shot into focus this week after the arrest of Russian businessman Vladimir Yevtushenkov on money-laundering charges that he denies. Many see the charges as a possible play by state-run Rosneft for Bashneft, an oil firm owned by Yevtushenkov’s company Sistema.
In Turkey, shares in Bank Asya have tumbled around 40 percent, which the bank attributes to a systematic government campaign to undermine it.
“The governance backdrop in emerging markets is definitely getting worse... Events in Turkey and Russia prove you can’t ignore the broader political and social context,” Smith added.
He expects emerging equities, up around 6 percent in 2014, to continue underperforming developed markets this year.
At Eclectic, Smith has teamed up with Emad Mostaque, who was his colleague at Pictet Asset Management before he left in 2010 to join Deutsche. Mostaque, an expert on the Middle East, Africa and oil markets, will continue to focus on these areas.
Besides Deutsche and Pictet, Smith has worked at Morgan Stanley, from where he predicted Russia’s 1998 crash. (Reporting by Sujata Rao; Editing by Hugh Lawson)