Wednesday, November 01, 2006

RNE to concentrate in eastern european electrical utility space

I just received a copy of the Business Wire Alert indicating that RNE will concentrate in electrical utilities. Here is the relevant information:

"Morgan Stanley Eastern Europe Fund, Inc. Announces That it Will Concentrate in
the Electric Utilities Industry"
Morgan Stanley Eastern Europe Fund, Inc.
(NYSE: RNE) (the"Fund") announced today that its Board of Directors has
determined that it is appropriate for the Fund to invest more than 25% of its
assets in securities issued by companies in the electric utilities industry of
Eastern European countries.

The full press release can be viewed here.

So instead of investing in a diversified bundle of Russian and Eastern European companies, I'll really be investing in electricity companies - will that increase my dividends? Are eastern european electrical carriers subject to market or controlled rates? Will it lead to price stagnation or is RNE catching the next big wave?

RNE has been one of the few closed-end funds available focussed on Russia and Eastern Europe. TRF is the other popular alternative. Most low expense index fans have had no alternative when looking at Russia.

I've heard a number of reasons for the lack of Russian and Eastern European index funds - teh strongest has been a concern due to the relatively low capitalization of many of the companies trading there - too low to create an effective index.

Putin's attempts to gradually consolidate many Russian industries into state allied behemoths might actually help create sufficient numberse of large cap companies to create indexes - then again if the companies are truely government controlled, they may not operate efffectively as market based companies. I believe one of the recent Russian IPO's - (was it Lukoil?) had a disclaimer that company behavior may be altered to suit government and other non-economic goals.

As Russia emerges as the largest oil producer in the world we are bound to see large increases in corporate capitalization. I wonder how that will effect RNE? From my experience in Russia, most electricity is generated by petroleum powered jet engines - maybe it will lower the cost of electricity for the producers - or raise it if Russia develops their own version of OPEC.

Have a wonderful day,

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