* Beating corruption vital to closing discount vs BRICs
* Exposure to China seen as supportive
By John Bowker
MOSCOW, Feb 3 (Reuters) - Russia is narrowing its discountto other BRIC stock markets thanks to strong oil and metalsprices but needs to beat corruption to erase the gap, investorsand analysts said on Thursday.
Debate at a major Moscow investment forum on the relativemerits of the BRICs -- the large economies of Brazil, Russia,India and China -- turned controversial as a sceptical audiencechallenged the bullish view from the stage.
"If you invest in an asset where there is no guarantee thatit won't be taken away, then you need a risk premium. Assetvalues will therefore be depressed," said Paul Bate, chiefinvestment officer at emerging markets fund manager Matterhorn.
Perceptions that Russia is a risky place to invest and toodependent on oil and gas exports have long kept its stock marketpriced at a discount to the other BRICs, but that gap hasnarrowed as crude prices have powered through $100 per barrel.
The RTS index .IRTS is up more than 20 percent since thebeginning of December, with Russia seen by investors as a netwinner from the inflation pressures that have destabilisedimport-dependent nations such as Egypt.
"Around $93 billion was invested in emerging markets in2010, but Russia only got a small part of it," said AivarasAbromavicius of fund manager East Capital, which has $4.8billion invested in Russia.
"But it had a good end to 2010 and we expect that trend tocontinue as commodity prices remain high," he told ReutersInsider Television on the sidelines of the conference.
FEEDING THE DRAGON
The bullish case depends on Russia capitalising on China'sresource-intensive boom, which is sucking in crude oil via a newpipeline, and aluminium and steel from Siberia's smelters.
"It is the greatest economic synergy on Earth: China theconsumer of resources and Russia on its doorstep," saidChristopher Granville, whose Trusted Sources consultancy coversthe BRICs, an acronym minted by Goldman's Jim O'Neill in 2003.
Aluminium major UC RUSAL (0486.HK: Quote), which raised $2.25billion in a Hong Kong IPO last year, pitched its float as aChina play, and first deputy CEO Vladislav Soloviev saidbilateral trade ties defined Russia's worth to investors.
"China's GDP growth could be 13-14 percent in 2011 ... thecountry needs rail, bridges, high-speed trains, but it lacks theright type of resources -- especially energy," he said.
"Russia has the opportunity to 'feed the dragon'."
BEAST IN THE ROOM
Granville, chairing the BRICs debate at the Troika Dialogconference, conceded when challenged that Russia's corruptionproblem was "the beast in the room that needed to be unmasked".
Russia ranked 154th out of 178 countries in a corruptionperceptions index released by Transparency International lastyear -- by far the worst among the BRICs -- and President DmitryMedvedev has put the issue at the heart of his reform agenda.
Kingsmill Bond, chief strategist at Troika, gave a robustdefence of Russia as an investment location while highlightingrisks associated with the other BRICs.
"Brazil has an over-priced currency, China -- there is fartoo much capital there leading to very low returns, and Indiahas a tiny middle class and a huge bulge -- that could lead tothe problems seen in Egypt," he said.
Yet he, too, said Russia needed to "sort out corruption orget poor; grasp the nettle or fall behind".
Russia, which suffered huge capital outflows and was forcedto devalue the rouble at the height of the crisis of 2008-09,has refrained from imposing capital controls even as high oilprices force up its currency, threatening competitiveness.
"It does not mean that Russia is a paradise for foreigninvestors, but it is a more open country for foreign investmentsthan most of the other emerging markets," said Michael Calvey ofMoscow-based private equity fund Baring Vostok Capital Partners.(Editing by Ruth Pitchford and Catherine Evans)