Director of Equity Financing, FINAM Investment Company, Moscow
Russian President Vladimir Putin
- Russia continues to deliver very solid economic data, and demonstrate that it is unlikely to stop expanding in the event of an unexpected fall in oil prices. Domestic demand is now the main driver of growth.
- Political risks associated with the transition to a new president in March 2008 are the biggest short-term concerns. President Putin has repeatedly vowed that he will step down in accordance with the constitution. Here at FINAM, we strongly believe there will be a smooth transition and we expect no major revisions to current policies.
- Steady improvements in living standards have provided the Kremlin with a strong mandate, and have provided the basis for more consumer demand. The policy of increasing state ownership of strategic sectors like aerospace, energy and metals is unlikely to change in the near future. This will cement the role of the "national champions" as the foundation of the country's economic system, even as private and individual investment continues to grow.
- Strong economic performance and positive sentiment on future economic development has strengthened Russia's ambitions to play a more influential role both internationally and in the near abroad. Periodic tensions in inter-CIS relations are likely in the coming years, particularly as Russia continues to eliminate special CIS prices for energy and other raw materials.
Russian GDP compared to global crude oil prices in the last few years
Here in Moscow, we are optimistic about the continued development of Russian financial markets. The ruble remains under strong appreciation pressure and this tendency is likely to be sustained. Ruble liquidity will remain high. Debt and equity markets will continue to diversify. Investors will have new opportunities to invest in a broad range of financial instruments in Russia, ranging from the bond market and mortgage backed securities to more aggressive choices like junior market IPOs, real estate partnership programs, options, and technology start-ups.
Today Russia is more prosperous than at any time in its long and often tragic history. While the Western media often admits that Russia's economy is growing, it usually insists that Russians have somehow exchanged some of their personal liberties for consumer comforts. Personally, I think that millions of Russians would beg to differ with this "glass is always half empty" assessment. For them, this new wave of prosperity has meant more personal freedoms -- to travel, to access the Internet, to start new careers -- in short, to pursue happiness.
Last month Deputy U.S. Treasury Secretary Robert Kimmitt visited Moscow to ask the Russian Finance Ministry to invest more of Russia's stabilization fund in America
Solid economic growth, at an average rate of 6.7% Year Over Year (YOY) for nine consecutive years has made the 1998 financial crisis a distant memory. The country is enjoying current account and fiscal surpluses, and has accumulated the third largest pool of cash reserves in the world (almost evenly split between dollars and euros, although increasingly favoring the latter), while building up a Stabilization Fund from extra oil revenues. These cash reserves reached US$405.8 billion and US$120.8 billion, respectively, as of July 1, 2007 and provide the nation with some insurance against declining energy prices.
Consequently, medium term economic risks should be manageable, and Russia now has the wherewithal to tackle its most pressing long term challenges -- namely, expanding prosperity to the regions and rural areas, where there is the biggest need for improvement.
You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and are reproduced here solely for educational purposes. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.