The Russian economy has reached a crunch point due to outflows according to Rachel Ziemba, director, emerging markets at Roubini Global Economics.

Ziemba spoke at the FTSE Global Markets Accessing Russia 2014 conference in London this week. She said that even before the issues with Ukraine the Russian economy was suffering from low growth due to police gridlock and that Roubini Global Economics had forecast this would turn into a recession.

“Russia has reached a crunch point due to outflows after Ukraine and even Russian companies switching from roubles to U.S. dollars,” she added. “We need to see a signal that sanctions will not escalate or a domestic catalyst such as increased domestic investment.”

This month Mario Draghi, president of the European Central Bank, said the bank had seen estimates of €160bn of outflows from Russia, much higher than the Russian finance ministry’s estimates of $51bn of outflows in the first quarter of this year.

Ziemba said Russian assets are cheap in emerging markets but equities are still a value trap.

“We need to see a relaxation of geopolitical concerns as otherwise the operating environment is going to get worse before it gets better,” she said.

Mattias Westerman, founding partner of Prosperity Capital Management and chairman of the conference, argued that a lot of investors focus on the macro picture in Russia but there is a lot of value to be found from micro factors in the economy.

Westerman said: “There is a turn around from Soviet production units into modern corporations. There are some very good management teams and who you choose to bet on will make a big difference.”

Jack Arnoff, partner at Elbrus Capital, said at the conference that investors avoid Russia due to corporate governance issues and worries about corruption.

“We have found that Russian companies are not badly managed at all and significantly better than portrayed globally,” Arnoff added.

Westerman added that a lot of progress had been made in corporate governance since the issues with Yukos and Russian regulators had a stronger awareness that corporate governance problems hammer international investment.

Featured image via Flickr/Dennis Jarvis under CC