Western Media Missing the Real Story in Russia
Investors Reaping More Profits than in India, China
Morgan Stanley's outdoor stock ticker in Manhattan
"Russia is increasingly turning out to be a tale of two different countries. At one level, the state is becoming more assertive and is seeking to broaden its influence in the 'strategic' sectors of the economy...but the rest of the economy is caught up in one of the most powerful domestic-demand booms in the emerging-market universe."
"The divergence in performance between the natural-resources sector and the rest of the economy is evident in the stock market. Shares of banking, media and consumer companies remain on a tear and have in fact risen more than their emerging-market counterparts even this year. Meanwhile, stock prices of oil and gas companies have been drifting aimlessly over the past year, with a 'Russia' discount assigned to them, as investors fear further government intervention."
"But in sum, it is rather remarkable that Russia's economy has expanded an average 7 percent over the past five years, despite negative population growth and a per capita income of $7,000—a relatively high base compared with most other developing countries. That dynamic has made Russia an attractive destination for foreign direct investment, or FDI. This year about $30 billion in FDI is expected to flow into the country, with most of it headed toward the non-oil economy."
Click on the extended post to read more excerpts from this excellent Newsweek International article ("A Tale of Two Russias") by the head of emerging markets at Morgan Stanley, Ruchir Sharma.
One of Moscow's "seven sister" skyscrapers facing the Moskva River
"Investors who have looked beyond the sensational headlines in the international media have made extraordinary gains in Russia. China and India may have registered faster growth rates, but companies catering to domestic demand in Russia have been able to achieve higher profitability, as the reduced hype surrounding Russia has resulted in less intense foreign competition on the ground compared with the opportunity presented by the economic boom."
"To be sure, the bull market in oil is not insignificant in fueling the demand surge. However, the Russian economic-renaissance story goes well beyond oil. What distinguishes Russia from many other oil-rich countries is the quality of its human capital, something that's helping the country rapidly converge with the more developed nations in terms of a thriving business and consumer culture. Several companies backed by solid managements have cropped up in Russia over the past few years to cater to massive pent-up domestic demand. These companies have been facilitating the explosive growth in new mortgages and credit cards, as people have access and the confidence to leverage for the first time."
"In an ideal world, Russia would have adopted democratic, free-market principles wholesale, becoming a paragon of economic and political transition. There are many Russians who say this path was not an option in the wake of 1990s reform—a process they believe resulted in more 'shock' than 'therapy.' True or not, the international commentariat is so consumed by Russia's [alleged] backsliding on the democratic front and the government's increased interference in natural resources that it is missing the real story."
Is it a Mercedes dealership? No, just a parking lot by a new 5-star hotel in downtown Moscow...
(Photo by: Yuri Mamchur)
"...Moscow increasingly looks like any European city (albeit with a nouveau riche touch). The latest models from the various luxury carmakers jam the city's narrow arteries. Many of the world's leading fashion brands have more outlets in Moscow than in any other emerging-market city. For pop singers on the global concert circuit, a performance in Moscow is a must, while the nightlife of the city is the talk of the international partying crowd. This is hardly the stuff of a place yearning for its communist past."
Comments
Well put on this story. People have really underestimated the power of the market in Russia. They seem to forget the multipler as well. The money from oil has gone way beyond itself.
Posted by: Thomas Halm | June 18, 2007 7:31 AM
Good article, Charles, but it has one shortcoming.
See, when you report on Russia, you MUST add something negative. This article will invoke jealousy and hatred for the most part, due to its ostentatiously positive nature. Russia can't be doing all that well!
You gotta mix in something negative, so that the "political experts" that are Americans, could gleefully say, "Yeah, that's great, BUT..."
You should have mentioned something about corruption, or tightening state control, or maybe shown some outdated photos of babushkas in kerchiefs standing in long lines to buy milk or smetana.
Anywho, just my 2c of sarcasm ; )
But really though, good job.
Posted by: Al Goroh | June 21, 2007 4:19 AM