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Thread: The Russian economy (catch all)

  1. #141
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    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.

  2. #142
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    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?

  3. #143
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    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

  4. #144
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    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.
    Last edited by Firn; 07-30-2014 at 01:00 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  5. #145
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    firn--what is the story with the Russian stock market crashing today and trading coming to a standstill and then resuming if it can until 1930 this evening?

    From Interfax today:

    18:05

    Moscow Exchange extends equities trading until 7:30 p.m.

    17:44

    Moscow Exchange to restart stock market trading at 5:50 p.m.

    17:23

    Moscow Exchange working to resolve stock trading problem; other markets operating normally
    Last edited by OUTLAW 09; 07-30-2014 at 04:03 PM.

  6. #146
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    firn---appears that the Russian banks are in for a rather hard time in the coming months.

    VTB is having a hard time getting refinancing capital for a refinance 1B plus loan.

    From a reuthers release today:

    The Russian Central Bank said it could support banks that were hit by sanctions. Russia's second-largest bank, VTB, said it would find funding outside of the EU and United States, using currencies other than euros and dollars.

    But bankers said Russian firms had been effectively frozen out of global lending, and not just in the West, leaving the Russian state as their only source of funding.

    "Right now, all banks are acting the same. No group is any more cautious or sanctions aware: It's all too important. Asian banks are the same as European or U.S. banks in this respect," a London-based banker at an Asian bank said.

    A banker said VTB had been unable to find a lender for a $1.5-$2.0 billion refinancing loan since a previous round of U.S. sanctions on July 16. VTB declined to comment.

  7. #147
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    firn--threat today by Russia to rise the energy prices due to the sanctions--that led the EU saying go ahead as we are in the middle of checking Gasprom contracts anyway for cartel violations thus the 10% fine we are leveraging against the total yearly Gasprom earnings could in fact go higher than 10%.

    I am not sure they fully understand the cartel thing as they view Gasprom a state organization thus above cartel law as Russia since the fall of the Soviet economy seems to believe everything state owned is above the law as it acts in the interest of the govenment.

    Gasprom had attempted to restrict Slovenian reverse gas flows to the Ukraine until the EU stated that they could not since under EU law that was not possible and there would be fines involved if Gasprom did restrict the flow.

    Suddenly gas flows resumed steady state.

    http://www.zeit.de/wirtschaft/2014-0...-energiepreise

  8. #148
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    firn---looks like the Russian economy is now scrambling to figure out what to do.

    From Interfax today:

    19:35

    Econ Ministry seeks Putin's help in monetary policy dispute with Central Bank - source

    19:17

    RUSSIAN ECON MINISTRY PROPOSES TO WIDEN 3 PERCENTAGE POINT PERMITTED DEVIATION ON INFLATION TARGETS - SOURCE

    19:16

    ECON MINISTRY PROPOSES INTRODUCING MECHANISM FOR ADJUSTING INFLATION TARGETS IN APPROVED MONETARY POLICY


    19:15

    RUSSIAN ECON MINISTRY SUGGESTS SPECIAL MECHANISM TO DETERMINE INFLATIONARY TARGETS WITH PARTICIPATION OF FINANCE MINISTRY AND CENTRAL BANK - SOURCE

    19:14

    ECON MINISTRY WANTS TO CHANGE SYSTEM FOR SETTING INFLATION TARGETS, CURTAILING AUTHORITY OF CENTRAL BANK - SOURCE

  9. #149
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    I have no idea what caused the stop and maybe I will check what is it about the supposed dispute between the RCB and MoF. At the first glance it might be about the tradeoff between more price stability and credit squeeze in the wake of the rate hikes.

    In any case this thread needs more graphs, here a nice view on the Russian trade volume with EU states.*




    The EU is by far the most important market for Russia while the other way around, not so much. And, needless to say, it isn't able to sell much in numbers but ressources...





    What the EU's tough new sanctions on Russia do. An informative article featured on one of my favorite sites, vox.com.

    *with the inclusion of inter-Eu trade.
    Last edited by Firn; 07-30-2014 at 08:20 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  10. #150
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    An area which wasn't discussed much in this thread so far is the increasing number of import bans by Russia, with Ukrainian juice being the latest. Such trade restriction on, to put it midly, dubious claims are nothing new but have now reached a considerable width and degree.

    Such Russian actions will hit mostly both European producers and Russian consumers. It will put additional pressure on inflation which has risen a good deal, despite the large rate hikes of the RCB. Certainly Russia is walking further along the path towards increasing isolation.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  11. #151
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    After the energy exports and the Russian important bans in strategic sectors it is time to look at the banking sector. This thread has a good number of links on it. With debt financing over Western markets and with it's capital getting harder for targeted companies and those suffering from the collateral damage Russia looks increasingly at Asia even big success was rare in the past months.

    Asia No Answer to Russian Companies' Capital Crisis by Reuters points out some of the difficulties faced.

    SINGAPORE/LONDON — Russian banks and companies shut out of Western funding markets are unlikely to be greeted with open arms and ready wallets in Asia, international bankers and industry experts say.

    New sanctions imposed by Washington and Europe over the Ukraine crisis have prompted firms such as VTB — Russia's second-largest bank by assets — and Gazprombank to look east for new sources of funding.

    Banks and investors in Asia, however, are reluctant to get involved. This leaves the Russian Central Bank as the only obvious alternative, apart from Chinese currency bonds where borrowing costs are rising and the market is too small to plug the gap left by Western capital markets.

    The Islamic bond market is also problematic.
    It is imporant to keep basic stuff in mind. Just like the Crimea has a hard time to switch from the deep economic links with Ukraine to the so far shallow ones with Russia, Russia itself faces problems with such a financial scenario. Deep economic ties take a long time to grow and rapid changes come at a (high) price. Even in the best case there will be friction and stumbling blocks.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  12. #152
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    Quote Originally Posted by Firn View Post
    An area which wasn't discussed much in this thread so far is the increasing number of import bans by Russia, with Ukrainian juice being the latest. Such trade restriction on, to put it midly, dubious claims are nothing new but have now reached a considerable width and degree.

    Such Russian actions will hit mostly both European producers and Russian consumers. It will put additional pressure on inflation which has risen a good deal, despite the large rate hikes of the RCB. Certainly Russia is walking further along the path towards increasing isolation.
    firn--Poland launched today a purchase an apple and support Polish growers campaign and by all signs the Poles are into it---side affect increased apple prices vs what they were getting from Russian exports.

    the rest what cannot be purchased by the locals will be recovered via a EU internal price support for lost markets---the same goes for the Baltics hit by the coming bans. The Ukraine is already getting import free duties on anything sold.

    So it looks like the Russian consumer will be paying the price of the bans not the EU.

    http://khpg.org.ua/en/index.php?id=1406748323
    Last edited by OUTLAW 09; 07-31-2014 at 04:28 PM.

  13. #153
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    Quote Originally Posted by Firn View Post
    After the energy exports and the Russian important bans in strategic sectors it is time to look at the banking sector. This thread has a good number of links on it. With debt financing over Western markets and with it's capital getting harder for targeted companies and those suffering from the collateral damage Russia looks increasingly at Asia even big success was rare in the past months.

    Asia No Answer to Russian Companies' Capital Crisis by Reuters points out some of the difficulties faced.



    It is imporant to keep basic stuff in mind. Just like the Crimea has a hard time to switch from the deep economic links with Ukraine to the so far shallow ones with Russia, Russia itself faces problems with such a financial scenario. Deep economic ties take a long time to grow and rapid changes come at a (high) price. Even in the best case there will be friction and stumbling blocks.
    firn---looks like Lukoil will be cutting back on their investment projects as they cannot get capital--they are the second largest producer so in the coming months it will be hard for Russia long term to increase oil product which they have to do to keep the increased cash needs flowing.


    http://uk.reuters.com/article/2014/0...0Q645520140731

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    firn---looks like Russian companies are trying to slide out of USDs and trying to use other currencies to run their businesses.

    From Interfax today:

    18:52 Norilsk Nickel transfers some cash into Hong Kong dollars - source (Part 2)

    .

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    firn---more indicators that the Russian companies are now in free swim mode.

    Interfax today:
    19:59 Bashneft board of directors recommends postponing SPO due to unfavorable market conditions

    19:55 Russian stock market loses morning growth in evening trading Thursday

  16. #156
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    Unfavorable market conditions have indeed been cited quite a lot by Russian companies and their government in those last months as they postponed and postponed. So far it only bought time to help to some degree alternative sources and avoided a higher benchmark.

    As I stated earlier even if they eventually find alternatives one can not just replaced one to one the world biggest markets and movers without suffering due higher costs, friction and disruptions. With less fresh capital at acceptable conditions available, an economy heading into recession and facing big geopolitical risks non-state investments won't increase...

    With Sanctions, Russia Becomes Crimea's Sole Investor fits in this regard, as the state might be forced to step in and carry the burden alone.

    Almost a third of that vast sum, or 247 billion rubles ($6.9 billion), must be channeled to building a bridge across the Kerch Strait, creating the first direct road and rail connection with Russia's mainland there, Savelyev said, speaking at a meeting with Deputy Prime Minister Dmitry Kozak.

    With the recent rounds of hefty punishments for banks and the limited size of the Russian market it will be interesting to see who will deem the risk worth it. As a whole interest will be turned down quite a bit.

    Contradicting earlier reports, Kozak said that the bridge, which will be the most expensive one ever built in Russia, is now to be funded on state money alone. Construction is scheduled to begin later this year, he added.
    In short it is not Russia's end but the longer Putin's war continues the greater the toll for it's economy, up to a point which isn't quite attractive. If harsh sanctions are not that good at achieving the desired political effect they do a pretty good job at hitting the economy hard. The latter will at least decrease the ability of Russia to modernize it's forces and maybe help other powers to think twice before doings something as stupid.
    Last edited by Firn; 07-31-2014 at 10:06 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  17. #157
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    Russia continues to hit strategic markets with duties of bans, in this case raising the costs for Moldavan imports. It certainly strenghtens the impression in European countries that Russia isn't the most reliable of trade partners and alternative destinations are inter alia more attractive. The latest round adds to the already quite strong inflationary pressure caused by devaluation.

    Putin to Introduce Consumer Tax to Help Stuttering Economy, Sources Say is, if true, an important article.

    President Vladimir Putin has decided to introduce a sales tax on Russian consumers, two sources acquainted with the issue said on Thursday, raising the tax burden earlier than expected as Western sanctions deepen the country's financial woes.

    The levy will be applied on a region-by-region basis, allowing each administrative district to decide on a sales tax of up to 3 percent to make up for budget shortfalls, which the Finance Ministry estimates will reach up to 1 trillion rubles ($27.99 billion) in the next three-year budget.

    The decision ends a rift among policymakers over whether to introduce a consumer tax or boost a current value-added tax.

    "The VAT will not be touched. Sales tax will be up to three percent depending on the decision of the region. Everything will go to the budget of the region," said one of the sources acquainted with the issue.

    "It's obvious that a consequence of introducing the tax will be an increase in retail prices by the size of the tax," analysts at Russia's Sberbank said in a report.
    From the perspective of a Russian economy facing (or already in) recession this looks at the first glance only like the stupidity it is. However it also shows once again what lessons Russian decision makers took away from history, that state debt makes Russia vulnerable to Western countries and has to be avoided at almost all costs.

    All in all Russia does hit back and itself to ready itself for increased isolation.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

  18. #158
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    firn---an interesting article on the impacts of the sanctions on the Russian foreign reserves from Bloomberg.

    http://www.bloomberg.com/news/2014-0...sanctions.html

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    firn---have you noticed the price of sour oil via Dubai and the KSA has been steadily weakening the last two weeks based on weak demand and a shift to more sales of light--at majority of the refineries outside of the US are designed for the light grade while a large number of US refineries handle only sour grades.

    Read recently that the Russian budget absolutely requires a minimum price of 85 USDs per barrel.

    We had talked way earlier about the potential of oil pricing as a pressure point.

  20. #160
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    I'm certainly not that informed about the oil market, but there have been voices that Russia increasingly needs a higher oil price to sustain it's budget as the public expenditures are quite rapidly growing. We had some articles in this thread about this dilemma.

    Sales Tax May Counter Soaring Deficit in Regions is a month-old article of the Moscow Times.

    The ministry estimates that the regions' total budget deficit will reach 857 billion rubles ($25 billion) in 2014 — 33.5 percent higher than in 2013, Prime reported Sunday, citing data from ITAR-Tass.

    Nonetheless, the ministry intends to cut that deficit nearly in half by 2017, bringing it down by 26 percent in 2015, 8 percent in 2016 and another 21 percent in 2017 to end at just 455 billion rubles ($13 billion).

    In order to accomplish this rapid reversal, the ministry has proposed an unexpected maneuver: allowing the Russian regions to introduce a sales tax.
    It is sometiems important to state the evident, and indeed in an economy not only the federal debt (and who financed it) matters. While the state debt might seem healthy the regions and other public entities can carry a surprising high debt burden, just as the companies and households. This was (maybe minus the companies IIRC) actually the case in Spain. We had the discussion in the thread about the European economy.

    There is no doubt that Russia overall little public debt, but there are, as mentioned before big problems ahead for it's economy.
    Last edited by Firn; 08-03-2014 at 12:13 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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