Investors hope to ride out tycoon storm

By James Arnold BBC News Online business reporter

Yukos is seen by many as a model Russian firm

Over the past few months, investors in Russia could have been forgiven for a twinge of unaccustomed complacency.

There has been a torrent of cheering economic news this year - 6% annual output growth, a soaring stock market, a crucial credit-rating upgrade and more foreign investment in nine months than in the previous 12 years put together.

At the same time, the Kremlin - its gaze fixed on December's elections - has been on a public-relations spree, shipping in foreign journalists in droves to exclaim over Russia's economic rehabilitation.

Against this background, the arrest of Mikhail Khodorkovsky - Russia's richest and arguably most admired businessman - can only come as a sickening shock.

Rough trade

Russian companies are a hard-nosed bunch, able to roll with the many punches they have been dealt over the past decade.

But Mr Khodorkovsky's arrest will nonetheless spark some nerves.

Few businesspeople have shed any tears for Mr Khodorkovsky, a billionaire many times over who is scarcely universally popular within Russia.

But the manner of his arrest, a brutal and very public armed assault on his aircraft, coupled with a marked lack of sympathy from the courts, is the real cause for disturbance.

Although President Vladimir Putin has his critics, the business community had come to respect what some saw as a measure of reliability and plain dealing from the Kremlin - a welcome change from the quixotic and ineffective rule of his predecessor, Boris Yeltsin.

Our kinda oligarch

Foreign companies, meanwhile, are even more likely to take fright.

Mr Khodorkovsky was by far the most westernised of Russia's tycoons.

Yukos, the main company in his portfolio, was one of the first oil producers to trumpet international accounting and ethical standards, and to adopt the smart-suit style of international business.

As a prominent supporter of Russia's free-market liberal opposition, Mr Khodorkovsky was a big headline name, much in demand on the international speaking circuit.

Yukos, unlike some of its more insular rivals, is entwined with Western partners - notably ExxonMobil, the US giant believed likely to buy a 40% stake.

Stocks slump

But whether heightened nerves will translate into smaller investments is another matter.

Mr Khodorkovsky was lionised in the West

Certainly, Yukos's shares - highly volatile performers this year - may take a battering this week.

And since Yukos alone accounts for almost one-third of Russian stock market turnover, any investor gloom is likely to translate into a broader sell-off.

If investors convince themselves that the Putin government cannot be trusted to keep its hands off the economy, this could become a rout in Russian bonds - and even the rouble, a rock-steady currency for the past few years.

Up and down

In the longer term, though, it is hard to see the Khodorkovsky affair doing much actual investment damage.

First, bashing oligarchs - Russia's cabal of politically meddling tycoons - garners bad publicity in the West, but is hugely popular within Russia.

Many economists and businesspeople feel that Russia cannot become properly capitalist until oligarchs are removed from the scene.

Second, politics aside, Russia does genuinely seem to be on the mend.

Strong economic growth, low inflation, a stable financial sector, aspirational consumers - these are the factors that investors really care about, and it would take more than a little governmental aggression to knock these off track.

In and out

Third, investors have short memories.

Crisis after crisis over the past decade has seen investors running away, but then running back far more quickly than anyone could have predicted.

One of the biggest foreign investors in Russia, Britain's BP oil company, was badly burned in the late 1990s, but is now committing more than one-eighth of its total capital to Russian projects.

Russia certainly needs foreign investment.

But, just as much, it seems that foreign investors need Russia.