Fiona Rintoul ponders aloud in the Financial Times about whether now is the time for fund managers to look more seriously at investing in Russia. Her article gives a qualified maybe, with a whole host of negative factors to consider:
The political situation is uncertain, and the Russian stock market has been in helter-skelter mode lately. Moreover, the local fund industry is littered with the corpses of fund managers who came, saw and failed to conquer; companies such as Pioneer, Templeton, Crédit Suisse and Deutsche Bank have all at one time or another withdrawn with their tails between their legs.
Vladimir Kirillov
The last time Russia looked ripe for investment was 2007, right before the financial crisis hit. Many more pre-crisis ventures failed than succeeded. Wealthy Russians retreated to funds based in Zürich or London, and the regulatory framework since has remained an obstacle for international investors.
Vladimir Kirillov, chief executive of TKB BNP Paribas Investment Partners, has a warning to those looking to get in:
The Russian fund industry is interesting for international companies but only those that are ready to develop this business in the long term. We don’t advise companies to come in and catch up.
Read the full article here.
While the state of the Eurozone remains the most pressing economic issue on the Continent, post-recession Russia isn’t expected to accelerate its growth either, according to John Bonar of British-based Business Special Report-Russia, with the challenges that marked 2011 not likely to abate any time soon:
All the leading investment banks predict more-or-less the same thing for Russia in 2012: a poor and volatile first quarter of the year with growth, investment and stock markets picking up and gathering momentum in the second half of year, barring a train wreck in the rest of Europe.
Moscow rings in the new year. Credit: AP
Bonar reports that capital flight of roughly $6 billion a month is predicted through the first quarter, with some 150,000 Russians looking to emigrate to improve their economic standing.
Lack of investor confidence in Russia also means “there is little prospect of any significant Russian IPOs” on the London Stock Exchange until the second quarter or later.
Economists, Bonar notes, are anxiously awaiting the March 4 presidential election, which, although the winner is predetermined, will be more interesting given recent demonstrations across the country.
After more than 18 years of negotiations, Russia has finally been accepted into the World Trade Organization, making it the last of the world’s major economies to join the international body.
The Russian parliament has six months to ratify the responsibilities that are part of WTO membership.
For more information on the WTO accepting Russia, read this.
Pavel Khodorkovsky
As rigged parliamentary elections provoked an outcry across the globe, Russian citizens have risen up to demand accountability from their leaders, writes Pavel Khodorkovsky, son of jailed former Yukos CEO Mikhail Khodorkovsky, in the World Policy Journal.
The protest movement is Russian through and through, Khodorkovsky explains, not provoked by an outside source. It’s a movement that he expects will only gain momentum as the nation heads toward a spring presidential election.
Read the full article here.
Reuters chief Russian financial correspondent Douglas Busvine writes that the price of Russian securities thought to have ties to Prime Minister Vladimir Putin, or to have profited the most under his economic policies, “have sold off hardest” in the days following this month’s rigged Duma election.
Russian companies mostly deeply in the red since Dec. 4 include gas firm Novatek, tied to Putin’s friend and oil trader Gennady Timchenko; potash miner Uralkali, which Suleiman Kerimov, backed by state banks, won control of this year; and gold mining company Polyus, in which Mikhail Prokhorov owns a major stake.
Busvine writes:
With the opposition crying foul over alleged fraud in the December 4 election, which cut the majority of Putin’s ruling United Russia party, investors have slashed their exposure to stocks whose prospects they see as tied to the stability of the regime.
Utilities stocks, like state-controlled Federal Grid Company, InterRao and RusHydro, are also underperforming, as analysts note that the Russian stock market is now trading at roughly a 40 percent discount to its emerging markets peers.
Read the full article here.
Prokhorov
Kudrin
As tens of thousands of Russians demonstrated across the country this weekend, protesting the rigged Duma elections of Dec. 4, two prominent figures, billionaire industrialist Mikhail Prokhorov (also known as the owner of the New Jersey Nets) and former finance minister Aleksei Kudrin have announced their intentions to run for president against Prime Minister Vladimir Putin in March.
More on this development here.
A man protesting the results of the Duma elections is arrested. Credit: Reuters
Tai Adelaja of Russian Profile notes that this week’s demonstrations in Moscow “may have started to take a toll on the country’s economy,” as state bank VneshEconomBank canceled its Eurobond placement and two Russian mining companies have completed their escape from the MSCI Index to the FTSE 100.
VEB’s bond postponement is the first of its kind since the early 1990s, as “bond investors who initially showed interest in buying VEB bonds have started to withdraw their applications, as uncertainty clouds political future in Russia.”
Meanwhile mining companies Polymetal and Evraz became the first Russian firms admitted to London’s FTSE 100, with analysts seeing “a political undertone in their decisions.”
Two other Russian companies, Russian Railways and TNK-BP, are planning to meet with investors next week, the results of which could signify how money managers feel toward Russia after the election.
Read the full article here.
The cover story in the Russian Weekly New Times gives a well-constructed overview of how Prime Minister Vladimir Putin and his cronies have “divided up the country” to create an all-powerful “Russia, Inc.” that controls 10 to 15 percent of the nation’s annual GDP. Yevgeniya Albats and Anatoliy Yermolin write that the process begun after the arrest of Mikhail Khodorkovsky in 2003 has continued through a series of hostile takeovers, questionable auctions and security service intimidations, as huge industries have returned to state control.
Essentially, a vertically integrated holding company has been created in the country’s expanses – it has its own credit organizations that provide working capital, its own cash factories that pump oil and gas from the land, its own pipeline systems, its own transport of all possible kinds, its own structures that ensure security and weapons for it, its own communications, its own social amenities, its own services, including media services, and its own instruments of political control.
Vladimir Putin
Putin’s strategy was to completely control the political process, remove Yeltsin-era elites from government and replace them with loyalists and audit to death the private companies created in the aftermath of the fall of Soviet Union.
With the Yeltsin-era business leaders out of the picture and his own cronies in place, wresting control of major industries – finance, energy, military and infrastructure – became possible.
The full article, in Russian, is available here.
Blackstone Group's Steven Schwarzman
The executives of J.P. Morgan Chase, the Blackstone Group and Citigroup were in Russia last week advising President Dmitry Medvedev on how Moscow can improve its business and investment climate, writes the Wall Street Journal.
“Funds are actually scared to put money here. That’s the problem you must solve,” Blackstone’s Stephen Schwarzman told Medvedev.
Schwarzman counseled the Russian president to sell off state companies to private investors, while J.P. Morgan Chase CEO James Dimon recommended developing a “very strong set of legal rights” to lure investors, as the country’s notorious legal system and high levels of corruption often drive away investment.
You can read more here.
The Kremlin’s human rights council earlier this week called for an amnesty for economic crimes in order to attract foreign investment and boost economic growth, according to Bloomberg News.
Kremlin observers say that putting this proposal into action, which is unlikely, would improve President Medvedev’s standing ahead of the 2012 elections. According to a top Russian business lobbying group, one in six entrepreneurs has faced criminal charges.
Medvedev set up the human rights panel back in February.
