Should you invest in Russia and China?

The stock markets of both Russia and China have boomed in the past year, propelling funds investing in these countries to the top of the performance tables.

TThe China funds from Neptune, Gartmore, Invesco Perpetual and First State occupy the top four places in the Asia Pacific Sector (excluding Japan) over one year. The top two emerging markets funds over the same timespan, from Jupiter and Credit Suisse, both invest heavily in Russia.
But while acknowledging that these countries have tremendous potential for growth investors would do well to reflect on certain recent developments which throw a rather different light on these emerging economies.
The Russian government’s arm-twisting of Shell to sell a large stake in the Sakhalin oilfield has alerted investors round the world to the realisation that the Russian government is prepared to seek the recovery of assets that had earlier been privatised.
Meanwhile in China western companies such as Google and Microsoft have been put under pressure to limit freedom of expression on the internet in that country.
Jason Hollands, of F&C Aset Management, says: “Investors should always be aware that standards of corporate governance are not as high in many emerging market countries as they are in more mature western economies.
“The high rewards obtainable through investment in emerging markets also come with high risk. There may also be wider questions about social responsibility to consider. At F&C, which has a range of ethical funds, we find that many investors do care about social responsibility and human rights.”
Are the activities of the Russian and Chinese governments an argument for not investing in these countries or is engagement the best way forward? Have your say on our Times Money blog.