The Russian economy (catch all)

[Firn]

Russia's surprise interest rate rise 'to curb inflation'.

BBC economics correspondent Andrew Walker

There's a key phrase used by the Russian Central Bank: "the aggravation of geopolitical tensions".

The shooting down of the Malaysian airliner over eastern Ukraine is now having an economic impact, indirectly, on Russia.

I will comment later on it, time has run out.

[Firn]

On Key rates by the Central Bank of Russia.

Of course the 'geopolitical factors' took it's toll, but in the long run this part confirms earlier statements and independent research:

Low economic growth rates are largely caused by structural factors. Utilisation of production factors — labor force and commercially viable production capacities — is high. Labour productivity growth is sluggish. Due to the demographic trends labour force shortage will continue to affect economic growth in the long term. Along with structural factors, external political uncertainty has a negative impact on economic activity. Investment demand remains weak amid low business confidence, limited access to long-term financing in both international and domestic markets, and declining profits in the real sector. Besides, consumer activity is cooling. Economic slack in most countries that are Russia’s trading partners does not contribute to acceleration in economic growth. At the same time, persistently high oil prices support domestic economy.

It seems harsh, but yes, Russia is in budget terms a bit like those oil states in the Gulf. Without high prices for ressources, especially oil and gas it's economic model doesn't work.

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The Central Bank of the Russian Federation (Bank of Russia)

Press Service

12 Neglinnaya Street, Moscow, 107016 Russia; tel: +7 495 771-44-17, +7 495 771-46-69; fax: +7 495 924-92-16;
www.cbr.ru

[Firn]

The German FAZ, Bloomberg (which also has a short historical overview with links) and the Sole 24 ore offer views from different countries. The strategy seems to be clear, with harsher ones possible, but for now the execution and the moral impact will matter.

After the last months it is still true that the balance sheet of Russia looks fairly strong but it's economic prospects increasingly grim. Russia is already paying a considerable price for Putin's war and now we have for the first time sanctions which show intent to harm the economy.

Treasury Secretary Jacob J. Lew, speaking to reporters today in Riverdale, Iowa, said U.S. sanctions are designed to maximize the economic pain on Russia while minimizing the effects elsewhere.

“If we are doing the sanctions effectively and smartly, we will put an enormous amount of pressure on Russia, and we shouldn’t see terribly negative economic impacts here in the United States,” Lew said. “Russia is barely growing now. With these increased sanctions, it’s going to grind Russia into either a flat or a negative economy.”

Personally I think that Russia is already in a recession but we will only find out once the adjusted figures come out.

The sanctions felt the earliest will likely be those bans on the bond market, unless the Russian Central Bank or the Kremlin react quickly and strongly.

European Union and U.S. sanctions jeopardize funding for Russian companies, which have tapped international capital markets for more than $600 billion in debt and equity since the country emerged from its 1998 default.

Russian businesses have about $165 billion in U.S. and European bonds and more than $100 billion in offshore syndicated loans currently outstanding, according to data compiled by Bloomberg. Whether banks based in China, which remains friendly with President Vladimir Putin’s regime, can replace that lending remains to be seen.

The sanctions against Russia “will likely force a further contraction in domestic credit growth and hence the economy,” said Alexander Moseley, senior portfolio manager in New York with Schroders Plc, which oversees $100 billion in fixed-income assets. “Asian debt and equity markets are probably not able to substitute entirely for curbed access to the dollar and euro markets.”

Orysia Lutsevych, research fellow at Chatham House in short Bloomberg video. She makes the point I raised earlier, some sanctions will work in the long term like those technology bans in the oil sector.

[OUTLAW 09]

firn---the EU is estimating the cost of this last round to be in the 100B range over two years thus 20% of their foreign currency reserves---the problem is that they can use those funds to support internally their economy---but to get to them they must cross through the NYC money exchanges centers and or thru the EU currency center which is now sanctioned and virtually any other exchange center will deny them as well as they do not want to get tangled up in the US long reach that they have in fines for those not holding to the financial sanctions ie the French and German banks right now with their fines.

Add the Yukos decision of 50B which they must pay if they want further foreign investment to come in and feel their investments are protected--that's another 10% from the foreign currency they hold.

Not a good week for the Russian Central Bank.

[OUTLAW 09]

firn--a really good article on the internal balancing at of the four pillars of Russian power 1) the military, 2) the security services, 3) the oligarch's, 4) the Russian mob and how the sanctions are starting to impact the internal politics of Russia.

http://www.nytimes.com/2014/07/30/wo...-tactics.html?

[OUTLAW 09]

firn--notice the contradiction in the two press releases---first the sanctions will not hurt our activities, but then we might need some help from the government.

From Interfax today:

12:08

SANCTIONED RUSSIAN AGRICULTURE BANK MIGHT SEEK GOV'T SUPPORT IF NECESSARY - SUPERVISORY BOARD MEMBER


12:04

SANCTIONS AGAINST RUSSIAN AGRICULTURE BANK WILL NOT AFFECT ITS ACTIVITY - BANK

[Firn]

This post is about the Russian stock market to be able to put it into the global context. I will try to address various issues in seperate posts.

Russia Stocks to Ruble Rally on Relief Sanctions Weren’t Tougher , by Bloomberg.

The benchmark Micex Index (INDEXCF) added 2.2 percent to 1,400.39, the strongest advance in more than a month. Russia’s currency rose 0.5 percent to 35.6240 per dollar as of 2:17 p.m. in Moscow. That pared its decline in July to 4.6 percent, the steepest monthly loss since January and the worst decline in the period among 24 emerging-market peers tracked by Bloomberg.

EU governments agreed on sanctions against Russia yesterday that bar state-owned banks from selling shares or bonds in Europe, restrict the export of equipment to modernize the oil industry and bar export of equipment with military uses. That was followed hours later by U.S. penalties against three Russian banks, including VTB Group, and a state-owned shipbuilder. OAO Sberbank, Russia’s biggest lender, wasn’t on the U.S. list.

While the stock markets of the developed markets had overall a mighty rally during the last three years the MICEX lost quite a bit making it by simplistic p/e earnings one of the cheapest worldwide. It is imporant to note that the Russian stockmarket is different in a couple of ways for example lack of free float, a few massive companies among the relatively few listed, ownership restrictions and so forth. History of Russia's IPOs as Reflected in the MSCI Russia Index and New IPOs Get Squeezed by the Size of Gazprom offer some background.

However, we hope that the next chapter in the index history will be all about new IPOs and new placements and an increase in free float. We are awaiting privatization deals, but at the same time we are hopeful for more IPOs of the companies in the non-Soviet assets sector. Russia's weight in the MSCI Emerging markets index is small — only 7 percent. South Africa, which has market cap three times smaller than Russia has bigger weighting because its free float is bigger. In fact, South Africa has 100 percent free float, and Russia only 27 percent. A large part of the Russian market is privately held either by oligarchs or by the state. There is also a big disconnect between Russia's weighting in global landmass and Russia's weighting in the emerging markets index.

....

First, I want to highlight the following statistics: Russia has only 26 companies in MSCI Russia index vs. MSCI South Africa 50 companies, MSCI India 73 companies, MSCI Brazil 78 companies, MSCI South Korea 105 companies and MSCI China 143 companies. Russia looks kind of small here.

Companies in the MSCI country index are the most exposed to international institutional investors. International investors do not just invest in any stocks on the exchange; they pick up the stocks from the MSCI Index for a particular country. MSCI is a financial information agency that tells which stocks in each country form an investible universe. Investors chose MSCI indexes rather then FTSE or S&P or any other financial information agency index because MSCI was the pioneer in setting up consistent methodology indexes for any country across the globe. They started their indexes right after World War II, just as the need for global diversification was coined by U.S. investors and as globalization started to gain speed.

Because Russia needs large energy revenues for it's economic model with a large public sector and relatively high pensions and only a few mostly state-controlled companies are handling almost all of this business targeting them can do far more damage on the Russian economy compared to 'normal' countries. The Russian banking sectors has some similarities through the large de-facto state banks.