Russian Fixed Income market is in the tough shape. 49 bonds have been defaulted in 2009. Bad debt amount according to RBC exceeds 80 bln rubles. Total lack of risk management, bad assets in the balance sheets of major investment firms in Russia and negative (-1…..-55%) performance throughout the industry make Russian government to create a “Russian Mutual Fund” to accumulate all defaulted bonds from private institutions. Jokingly saying, Russians are trying to found a “toilet fund” to flush all bad bonds at the expense of Russian taxpayer. Is this good news? Find more in our May 09’s Newsletter.

We at GR Invest are excited about many billions in Rubles the Russian government has pledged to support and encourage small and medium sized enterprises. While we have no specific recommendations at this time it is encouraging to see action being taken to encourage growth in what is the foundation of any successful economy, small and medium sized businesses. Coupled with specific tax policy, this should be positive for the entire economy in the future.

We at GR Invest are optimistic about the construction sector, residential housing in particular as growing consumer demand will push new construction rates higher. The government is indicating it will increase funding to help consumers purchase affordable housing. Needless to say, this will help many industries and many companies in particular. We will be featuring several of them in the form of recommendations.

Now could be the best time to look into equities and fixed income securities in the energy sector. We feel energy prices have reached a floor, although it is tricky to try and predict an exact time they will return to levels last seen a year ago. In addition to our belief that prices will not be headed downward, the Russian government has identified the energy sector as a key strategic sector in the national interest, and we believe they will devote all resources need in order to stave off any emergency in the sector.