The Russian stock market has become flavour of the year with emerging market investors once more in spite of the country's shattering financial crash, a year ago tomorrow, and continuing political turmoil.
Since the start of 1999, the Russian stock market has surged more than 100 per cent in local currency terms on the back of higher oil prices and a stronger than anticipated industrial recovery, making it one of the best performing markets in the world.
But the truth about Russia is that it still does not have a stock market. Rather, it boasts a highly volatile options market.
Buying a Russian equity does not give investors enforceable ownership rights over a company's assets nor guarantee a slice of future cash flows.
A Russian share is perhaps more accurately viewed as an exotic type of option, which may be converted into real equity one bright, shining morning in the future, when the country has built the infrastructure of an effective market economy and an independent judicial regime.
As Mr Bill Browder, director of Hermitage Capital Management, says: "The Russian market is not really valuing anything on a fundamental economic basis. The market is more a perception of whether Russia will become a proper member of democratic, capitalist society. If Russia breeds an environment where equities really are equities, then everything is ridiculously undervalued. If they do not, then all of this speculation up and down is essentially a worthless exercise."
Of course, much the same could have been said of many other emerging markets at different points in the past.
Brazil remained in the investment doldrums for decades as the country battled to get public sector deficits and inflation under control. But when Brazil introduced sounder monetary policies and more responsible government, the value of its corporate assets soared.
The hope is that Russia's Gazprom - which trades at about a 95 per cent discount to Exxon of the US - could one day be revalued in a similarly striking way to Telebras in Brazil.
The scale of the challenge in Russia, however, is perhaps greater than anywhere else given that the country spent seven decades purposefully expunging the cultural and societal underpinnings of capitalism.
In Soviet times, it was almost accepted practice for employees to steal from their state-owned enterprise according to their status. Although most of Russia's companies have nominally been privatised, this mindset has persisted.
Many Soviet-era "red directors", who continue to run most of Russia's bigger companies, argue it makes more economic sense to divert their cash flow into property in the south of France than to plough the money back into their businesses and lose the proceeds to the taxman or the mafia. While this practice continues, the most lucrative way of playing the Russian market may be to buy property in Nice.
But there are many encouraging signs that Russia is moving towards a more meaningful shareholding culture.
Under the brave leadership of Dmitry Vasilyev, the Federal Securities Commission is doing its best to lay down some laws in Russia's anarchic capitalism. Some tenacious investors are - with some success - beginning to defend their legal rights in the courts.
The hope is that the market will itself provide more of an incentive for good corporate behaviour when Russian companies are again able to raise capital.
Those companies which treat their shareholders with respect should see their share prices rise and their cost of capital fall. That should enable "good" Russian companies to raise relatively cheap capital, enabling them to buy out the "bad".
For the moment, the prudent foreign portfolio investor may take the view that if the revaluation of Russian assets is potentially so massive then there will be plenty of time to grab part of those gains in the future. Why assume the additional risks now?
