Several miscellaneous stories to end the week, firstly Russia debuted its new airliner this week. Although not poised to overtake any international competitors yet, it has nearly a hundred firm orders and several dozen options for orders. It also plans on building a smaller version to challenge makers like Embraer and the like, did we also mention the fact it has the backing of the Kremlin, both political and financial? Although GM’s market-share in North America is disappearing-and fast, in Russia it keeps on increasing. They announced sales of their Opel car, which they just started producing in Russia is over 200% from last year. Their new factory, employing 900, will produce over 70,000 autos a year….an of course spawn industrial activity by many of their supplier companies.

Putin recently stated his 1 trillion dollar investment plan in Russia will be 20% financed by the government with the remaining coming from private industry. This can take the shape of many forms including government controlled entities like UES, Gazprom, railroads etc. Much of it though, will result from local and federal governments facilitating the investment by foreign companies in various industries-as long as they weren’t deemed to be part of the restricted industries deemed to be in the country’s interest. Also look for the issuance of many bonds brought to market and the forming of public-private companies.

British investment firm Belgravia is partnering in real estate investment deals worth 2 billion dollars. These are projects scheduled to be built throughout Russia, especially in the previously ignored regions. What makes this project remarkable is the fact that most of the space is already pre-leased demonstrating the demand for new modern facilities in areas other than downtown Moscow and St. Petersburg. Even in a challenging investment environment, even after incredible appreciation in investments already, we are advising our clients bigger and better opportunities await for the well informed.

I’d thought we would end the week with our first entry of many concerning Ukrainian business. Ukraine wants to join the EU, the EU wants Ukraine to join, so what are the things delaying this important thing from happening? Firstly, Ukraine must gain entry to the WTO. There are theories why this hasn’t happened yet, one of which is Russia doesn’t want them to until Russia joins and is using their influence with Ukrainian politicians to prevent this. This is a developing story and even though Ukraine has been trying to join the WTO for years, it could possibly happen within the next 6 months to a year. Once that occurs, joining the EU on an official or a partial basis should be fairly speedy as it is a goal both sides want. We will have more on specific industries and stocks that will benefit from this, but it should not be underestimated the impact this will have upon Ukrainian business.

Check back often with us in the coming weeks as we begin to feature analysis and recommendations on a southern neighbor to Russia, Ukraine. Although much smaller than Russia, it still features a population and land mass that places it among the larger countries in Europe, and a place of great potential. It has great natural resources, but instead of oil think agricultural, machinery industries, tourism, and an exploding real estate and tourist industry-all without being a member of the EU, yet. All these factors are enhanced by having a firm and developing property laws protecting the investor.

As you are probably aware, the U.S. Central Bank cut interest rates by a half percentage point with every indication it will not stop there. What is some macro affects upon the Russian economy you ask? Well, firstly, it improves the attractiveness of Ruble denominated bonds, due to interest rate cuts the dollar will hasten in its fall from grace. Secondly, because oil is priced in dollars, the price of oil and other commodities should increase even without considering supply or disruption concerns. Lastly, the general mood for risk taking should improve in regards to emerging markets, of which Russia is one.

Russian Railways is a multi-billion dollar railways company involved in transportation not only within all of Russia from the Pacific to the Baltic and Europe but in negotiating transportation deals spanning from Western Europe to Southern Asia. Pages could be spent here on operations of this giant but in this case, we’ll just stick to the bond. It has a comfortable maturity of 479 days, an effective YTM of 7.31%. It is rated BBB+/Stable by both Fitch and S&P, A3 by Moodys and is payable in the appreciating Ruble.

President Putin is behaving like a corporate President as well as a sovereign head lately, and that is a good thing. Although we would like to see structural reforms to the Russian economy, the next best thing is signing multi-billion dollar business deals with an assortment of countries. First it was a uranium deal with Australia, then deals in metals and defense worth well over a billion dollars with Indonesia, and just recently a billion dollar telecommunications deal with Vietnam, not counting a metals deal that is currently being discussed. Just yesterday a deal for two airliners worth over a hundred million each was signed with Armenia. I didn’t even mention anything to do with energy in today’s update, even though I could have easily talked about what a positive influence it has been the past several days on equity markets here.

Three months before elections Putin has appointed to Prime Minister someone most people believe to be his successor- Viktor Zubkov. When one looks at his biography, it does not provide any clear signs as to what direction he would take the nation, he was a career beaurocrat under the old communist regime before joining the gang from St. Petersburg. In first analysis he does not come from the defense establishment, this might be a positive sign, or it could just be a sign he could be easily controlled, time will tell. This might be all a bluff as well to hide the real candidate, stay tuned as we delve deeper and analyze further.

A few minor developments in the Russian economy today, but important if they are part of a larger trend. Russian steel giant Severstal will be investing at least 5 billion USD worth of investment in new manufacturing plants in Russia, details to follow but they should be modern plants producing higher qualities of steel. The St. Petersburg area recently hosted a delegation from Japan in order to spur economic ties. Many of the companies, but not all here to explore the establishment of manufacturing plants to support the auto industry. In only a few years, Japan’s investment in Russia has grown from only a few companies to dozens.

Russia appointed a new head of its state sponsored nanotechnology company. As a parallel to something in the West, I’ll be watching to see if this develops into something resembling the NASA of the 60’s and 70’s, an agency the government filled with dreamers, pioneers, risk-takers, scientists that worked as harder after they received their Phd. as they did to earn it in the first place. Not the NASA of today, an organization symbolizing government ineptness, waste, and living on past glories. What’s important to see here is the impact it will have far beyond what it directly does. Will it spur a whole education and research industry on the university level that will attract public and private investment from Russia and all over the world. Will it spur innovation, new technologies, and new products that private corporations can use to advance the industry even further? Will it form a symbiotic relationship with its suppliers in creating an industry that can translate new, formerly theoretical products into viable commercial products? This and many other questions will be answered in the next few years, promising to present investment opportunities as profitable as the technology boom of the 90’s.

In November the cabinet will likely approve a 500 Billion dollar spending bill for railways and roads. Over the next several years and decades Russia will be building the above mentioned projects in addition to ports, electrical power grids, Olympic facilities, and other infrastructure deemed important to the countries economic competitiveness. Due to the fact so much debt will be appearing on the market, attractive rates will surely follow. Additionally much of the debt will be offered by regional and national government agencies, government related corporations, and public monopolies so the return/risk should be attractive. Of course we will be highlighting just a fraction of this debt on these pages, please contact us to discuss opportunities that fit your needs specifically.

Until world credit markets start to stabilize, we are playing it safe at GR Invest and sticking to quasi-sovereign debt of the oblast type, in this case the Lipetsk region, located in the Central Federal District of Russia. It is denominated in Rubles, traded in Russia on the MICEX, rated by Fitch BB-/Stable, maturing in 972 days, and has an effective YTM of 7.86%. We feel currency reserves and the stabilization fund make this an attractive instrument. The economy rests on a diverse manufacturing base rather than natural resources.

A Russian airline geared towards the middle and working class of Russia has increased profits and passenger traffic in the low single digits. In America, much of a company’s increase in sales may come from population increases in the population of America itself, in other words there are more and more consumers every year. In Russia, the population is stagnant at best, probably declining slightly every year so when a company posts higher profits, and its product is aimed at the middle classes, likely living standards have increased somewhat for this population in the past year as well.

Everyone knows that most people don’t find gold in a gold-rush, but it’s the suppliers that make the fortunes. It’s the merchants that sold the shovels and jeans that made out in the California gold-rush of the 19th century and in the internet gold-rush of the beginning of the 21st it was companies like Cisco and Oracle. So, with a blossoming automotive industry in Russia, what companies are sitting in the cat-bird’s seat? One you may want to look at is called Magnitogorsky which recently acquired another steel company in the St. Petersburg region in order to give it access to a region that is geographically important to Russia’s automotive hopes and it will produce the type of high quality steel demanded by auto manufacturers. It is a 117 million dollar plant, the company in total had sales over 6 Billion with profits over 1 Billion. Additionally, the company’s stock has risen 16% since May 2007.