As part of Russian industries encouragement from the government, as well as it being a good business idea, Severstal announced yet another North American acquisition from a Russian steel company. The company is a specialty steel manufacturer and distributor called Esmark, having a market cap of 750 million and revenues of over 600 million. This will likely not be the last one either as a relatively weak Dollar, strong Ruble, and a Basic Materials sector flush with cash all converge.

The latest news concerning fixed income in Russia concerns the ripple effect the hundreds of billions of dollars that will be spent on infrastructure will have. One need only look to the steel industry where there will many billions of expansion to keep up with demand, as evidenced by yesterday’s Evraz announcement of 1.8 Billion dollars worth of expansion, and keep in mind this is only one of many companies. Interest rates in Russia have started to head higher recently in response to many factors and the head of the Russian central bank commented he might be inclined to raise them further later this year. This is on top of his comments concerning letting the value of the Ruble rise, all things our foreign investors like to hear.

While we aren’t disclosing specific opportunities yet, keep your eye on the Crimea region of Ukraine as a future tourism hot spot. It has everything one could look for in a resort, beautiful seaside and surrounding scenery with an unspoiled charm. We think when Ukraine finally does become eligible to join the EU, expect to see many of the same things that have happened already in places like Croatia and Bulgaria with real estate values soaring many times their current rates.

Talks will be held between the EU and Russia in order to establish closer economic and energy ties. Some Baltic countries that were previously an obstacle to talks have signified the easing of their objections. The incoming presidency of the EU will be held by France, a country that has signified its desire for a better relationship. Putin is rumored to be headed to France in the near future on a state visit. With energy prices as high as they are as a motivating factor and a new, friendly presidency in the EU, now could be a time for a change.

The government announced an ambitious 570 billion (USD) plan to upgrade the country’s transportation network including ports, airports, railroads, and highways. While nobody will argue the need for infrastructure improvements, we think this will undoubtedly push interest rates higher as waves of debt debut in order to pay for these improvements. Some buys will be better than others, we will be featuring some of the best.

Russia has made a couple of moves that received little or no press attention in the West, but, should make world energy markets feel better. Firstly, a fuels terminal is being completed on the Baltic Sea that will allow the country to bypass some potentially unfriendly Baltic nations and will assure Russia can and will be getting its product to countries that want and have the ability to pay for it. This complements the plan of building a pipeline under the Baltic Sea to help go around countries such as Belarus and Ukraine that occasionally create conflict or difficulty with Russia and risk the delivery of oil to Western Europe. Gazprom, is actively pursuing a strategy to ship, transport, and store liquid natural gas from its fields in Siberia. It recently bought for nearly 900 million a transport terminal located in Canada that will allow it to sell to a hungry North American marketplace.

Hewlett-Packard and another firm announced a billion dollar assembly plant to be located in St. Petersburg to make computers to be distributed in Russia and eventually throughout the Baltic area including Scandanavia. For the plant to be really profitable, and not just save money on distribution costs Russia must lower its import tariffs on computer components, which ironically are higher than the cost of importing finished computers, this is due to the protection of the domestic computer industry. Regarding lower taxes, the lowering of taxes on the oil industry in an effort to encourage additional exploration and production has progressed further within the government and official action should be expected soon.

Congrats to Ukraine on joining the WTO. As we have said before this should bring growth over the long-term to the economy and good news for the Ukrainian consumer as well. Ukraine’s neighbor to the north, Russia has only a few more countries to negotiate with before being eligible to join the WTO, the trouble is one of them happens to be with a country they have some tensions with right now, but things can and do change quickly. Regarding Ukraine, my bet is on a special relationship to be established between them and the EU at some point as a prelude to full membership.

Expect no great policy changes in the next several months despite the talk of legal reform and development of sectors of the economy. Medvedev will spend the near future consolidating his power and appointing loyal associates to key government positions such as recent government shake-ups in the past several days indicate.