Not wanting to humiliate Prime Minister Putin in the days after announcing his plans to run for the presidency, Russian traders are buying up cheap stocks in a rash of “patriotic buying,” according to market analysts.
Julian Rimmer, a trader of Russian equities at CF Global Trading in London, told Bloomberg News he believes that Russian investors with ties to Putin are buying shares to support the market following the prime minister’s presidency announcement:
I suspect that there are some ‘patriotic elements’ related to the state which are encouraged to buy certain stocks because having the Russian equity market open down three percent on the announcement of Putin’s presidential candidature was embarrassing.
Russia’s benchmark Micex index dropped 12 percent last week but rebounded slightly and rose 1.5 percent to close out the day, erasing an earlier loss of 3.6 percent. The Micex has fallen 20 percent this year, while the S&P has fallen only 7.5 percent over the same period.
Former Finance Minister Alexei Kudrin
While Putin’s decision to return to the presidency was no shock to Kremlin observers, the dismissal of Finance Minister Alexei Kudrin has rattled market analysts across the continent.
On the heels of Putin and Medvedev’s announcement this weekend to swap posts for 2012, Kudrin, who had been mentioned as a possible prime minister candidate, threatened to quit his post. Monday he was fired for “insubordination,” and word of Kudrin’s departure rippled throughout the Russian economy, as the ruble fell to its lowest level against the dollar in more than two years.
Tim Ash, the London-based head of emerging market strategy at Royal Bank of Scotland Group, told Bloomberg News that Kudrin’s departure is “a body blow for Russia” and that he “cannot remember a time when we had such power struggles coming out to the fore under the Putin administration.”
“The market is clearly not happy with the idea that Kudrin is leaving the government,” said Kingsmill Bond, chief strategist at Citigroup in Moscow. “Putin’s return to president was fully priced in whereas Kudrin’s potential departure is a key area of concern.”
Mikhail Khodorkovsky in 2001
Foreign businesses looking to set up shop in Russia should “work out an exit strategy in the event that the business turns out to be successful and attractive to raiders,” jailed former head of Yukos Mikhail Khodorkovsky said this month in response to questions from Reuters.
Once concerns become profitable, he said, state institutions are then used “for the enrichment of private individuals” and not to help average citizens. “It is obvious that the risk-benefit ratio [for businesses looking to enter the Russian market] is now being assessed as unfavourable” as “the siloviki bureaucracy continues,” he said.
In a wide-ranging interview, Khodorkovsky said that while he had few regrets about the way in which he built his company through the 1990s, he believes he should have done more to develop civic institutions. “Had I the experience I have now, I would have put in more effort towards building a civil society and would not have spent all my time on reviving industry.” An interesting comment, as many Kremlin observers would argue that his efforts to do just that — build a civil society – were what led to his arrest.
To read more from the interview, visit http://ca.reuters.com/article/topNews/idCATRE78H0R320110918.
U.K. Prime Minister David Cameron
In his first official visit to Russia, U.K. Prime Minister David Cameron called on the Kremlin to stand by the rule of law, thereby helping businesses and shareholders gain the confidence they need to inject capital into the Russian economy.
“[Investors] need to know that they can go to a court confident that a contract will be enforced objectively and that their assets and premises won’t be unlawfully taken away from them,” Cameron said, as reported by Forbes.
Economists have cited lawlessness as the main the reason U.K. investment in Russia has dropped in recent years. British M&A in Russia “slumped to $346 million last year, compared with $428 million for German companies and down from a peak of $2.1 billion in 2007,” according to Bloomberg.
A host of business leaders accompanied Cameron on the trip, including BP’s Bob Dudley, who, as you may recall, was expelled from the country three years ago after claiming he had been harassed by the Russian government and whose Russian offices were raided by federal authorities just hours after rival ExxonMobil announced a major agreement with Rosneft.
Russia’s economy has become less competitive in the last year thanks to “deterioration in…the quality of institutions, labor market efficiency, business sophistication and innovation” according to the World Economic Forum.
WEF’s Global Competitiveness Report for 2011-2012 ranks Russia no. 66, while other emerging economies, including the BRICS, made gains on developed markets.
The report also cited problems with the rule of law, the judiciary and the protection of property rights as major concerns.
To read the full report, visit: http://reports.weforum.org/global-competitiveness-2011-2012.