Russian Fixed Income Investments

2011-03-28T18:32:00.001-07:00

We’re witnessing a show of duplicity, intrigue, and opposing groups of sharks attempting to out maneuver one another. I am speaking specifically of the Rosneft-BP share swap proposal with TNK-BP attempting to play the spoiler. Pull up a chair, and let us be your MC to this unfolding story. BP is attempting to swap shares with Rosneft to corner the market on new exploration territory in the Arctic. They are weakened and desperate for new reserves and are willing to deal with the devil to do this. The corporate chiefs at BP think they have what it takes to deal with the Russians over the long-term, we wish them the best of luck. The Russians are looking to link with a major Western company to legitimize their takeover of Yukos, perhaps launder money out of Russia, and further weave a web of power and influence around the globe, opening new markets utilizing the BP structure. Stay tuned as we discuss things you usually don’t hear in the mainstream Western business media, we tell you the truth, and leave the spin behind.

2010-02-23T08:14:00.000-08:00

The Russian Central Bank recently lowered rates in an indication of the seriousness of the slowing of the economy. The federal government has also indicated in recent years and weeks it will be paying close attention to agriculture in order to make Russia a leading exporter to the world. Very attainable as it has 10% of the world’s arable land, and only a fraction of that is currently cultivated. In addition to legal reforms that should be introduced, there will undoubtedly be bonds coming to market to finance construction of ports and other infrastructure necessary in order to maintain and enlarge the current system.

2010-02-15T06:10:00.000-08:00

With all the talk about government and energy bonds, what seems to get lost in the mix so to speak is the size, liquidity, and desirability of the Russian railways sector. To those unfamiliar, in a country the size of Russia, with a lack of a national highway system, lots of heavy industry, and for many other reasons, the railway sector is an enormous part of the economy, requires enormous investment, and as such, issues bonds to cover investments costs. In Russia, the company that is the national railway company, Russian Railways enjoys a monopoly in its business. For many other reasons, not listed here, this could be a desirable part of most people’s fixed income portfolio.

2010-02-10T09:47:00.001-08:00

Today’s entry is a play concerning the energy industry of Russia, it is speculative, we’ll see how it develops. As we know, Tymoshenko lost the recent elections in Ukraine and Yanukovych won, this could have an impact upon the energy industry in that the candidate that won might be inclined to sell some of the pipeline infrastructure in Ukraine to Russian companies, this could lead to less chance of disruptions in the gas supply to West Europe. Again, this is highly speculative right now, we of course are monitoring the situation.

2010-02-05T10:52:00.000-08:00

Things might be getting choppy for the Russian economy. Because the Russian economy has become so dependent on the price of oil, almost like a proxy for the global oil markets, investors should pay close attention to the price of oil, now and on the horizon. At $70 a barrel, it has decreased drastically, just in the past month but two factors should be considered if your gauging the odds of further decline. Firstly, the futures contracts for delivery of oil are much greater than the actual physical capacity to store the actual oil, by a factor of several times. Secondly, global oil refiners are shutting down refining capacity because of their inability to make money with oil in the 70s and 80s. This is taking major oil customers (the refineries themselves) off the market which should further weaken demand for an already weak demand for oil.

2010-02-03T14:54:00.000-08:00

Russian municipal bonds are paying over 9%, but the wise cautious side of your bond investing personality is asking how likely mass defaults in the municipal bond market are? With all the trouble U.S. states and cities are having, you could make a reasonable argument they could be riskier than their Russian counterparts. Here are a few things you should consider. Although the government is running deficits of 5.9% for 2009 and a projected 6.5% for 2010, there is still money in the sovereign fund, and they are projected to offer Euro denominated bonds in the approaching year as a way of raising money. Additionally, the Russian administration might view allowing any municipality to go bankrupt as reflecting bad on the entire country and will do whatever it takes to prop-up the local administrations so they meet financial obligations. So when deciding which bond is best, a strategy could be to choose something maturing in the short-term to medium-term, selecting a less financially stable region, taking advantage of a higher yield.

2010-02-02T12:49:00.001-08:00

A recent press release by the government stated Russia pulled out of recession back in the 3rd quarter of 2009. There are those that can present a compelling argument on both sides of this debate, but the critical issue for many in the fixed income community is whether this will stoke the flames of inflation at any point in the foreseeable future. The short answer is no, at least no inflation will be the result of wild and unrestrained economic growth. Two important variables help us in this analysis, one is the continued decline in industrial activity and the second is the continued high and possibly increasing unemployment rate.

2009-10-30T04:46:00.000-07:00

Ruble reaches the new records again. Russian Central Bank keeps ruble emission on a leash trying to reduce inflation to pre-set 10-11%. Most of economists argue that lack of cash in the economy might cause a negative effect especially during the crisis. But fear of hyperinflation is stronger then troubles of some (most) small and midsize Russian businesses.

2009-10-06T06:17:00.001-07:00

Today US dollar marked 29 rubles. Is dollar getting weaker or ruble got stronger? Please follow our discussion in a weekly newsletter including expert's opinions.

2009-09-08T05:28:00.001-07:00

Russian Central Bank might regulate foreign loans to Russian commercial banks. Ru financial institutions used to borrow up to 50% of passives before the crisis. An average level amongst Russian banks was 15% in the summer of 07. Russians consider 30% foreign money in passives as a warning sign (don’t compare to trillions of US Fed debt to foreign investors…).

We foresee more RU CB defectiveness in a future but current regulations don’t show how this would affect direct investments to Ru enterprises.

2009-07-19T13:42:00.000-07:00

Today is the 40th anniversary of the moon landing. Two and a half hour moon Aldrin's walk broke communism and the snail move toward free market economy in USSR had begun. New generation of Russian politicians must have forgotten the history and trying to restore "the centrilized economy" in Russia. Please find more in our newsletters regarding the analysis and predictions about newly formed government corporations in Russia.

2009-07-12T07:23:00.000-07:00

Following summit in Moscow with 2 presidents, there were plenty of comments and opinions. It's nice that the presidents met and "hung-out a bit". Despite their "body language" wasn't showing a lot of personal chemistry, a pragmatic relationship could be a lot more efficient than "Putin-Bush friendship".

2009-06-12T05:51:00.000-07:00

The times are interesting both politically and economically in Russia. Prime Minister Putin recently traveled to a small town to demand a local business pay wage arrears to employees after protests erupted. This highlights a disconnect between state and local economies, governments, and businesses which are short of cash, and the central government which still has a large surplus of cash. To highlight the dissatisfaction of Moscow, President Medvedev warned governors that failure to meet economic challenges could result in their dismissal. This is a situation well worth watching and we will keep you updated.

2009-06-03T05:52:00.001-07:00

Russian SEC changed the rules for companies that offer IPOs on the foreign exchanges. Most of IPOs have been sold on LSE, NYSE and GSE. Russian companies could sell up to 25% of their common stock, for instance, TMK sold 14.4% in 2006, OGK-5 and TGK-5 sold 20% and 15% in 2007 respectively. Now Russian companies are allowed to distribute only up to 5%. What it means for investors? Less supply and most likely higher demand.

2009-05-31T19:01:00.000-07:00

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.

2009-05-20T06:46:00.000-07:00

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.

2009-05-18T15:23:00.001-07:00

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.

2009-05-13T14:12:00.000-07:00

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.

2009-04-28T05:24:00.000-07:00

There is a very little activity on Russian fixed income market today. Still many good picks are available with the potential 15-20% APY. What to do with the unpredictable ruble/$ rate? We bet it will be safe for 2009-2010.

2009-04-02T05:54:00.000-07:00

Will Russia lose the rights for the Olympic Games 2014? Building all infrastructures on a small spot of city of Sochi is very expensive and painful for locals. The future use of stadiums and arenas is unclear. The cost of construction exceeds 25 bln.

If Russians would not overcome the corrupt business practices and Games 2014 might be a failure.

2009-03-18T09:00:00.001-07:00

Could this be a good time to bargain hunt for debt and stock in Russian blue chip companies? The answer is you should probably be thinking about it and planning your next moves if history is any lesson. Companies such as major Russian energy firms as well as others will definitely weather the downturn no matter what, and at the prices they are selling for now, it’s an opportunity that presents itself not very often so now is the time to start planning your moves.

2009-03-05T06:23:00.000-08:00

There is a complete unity amongst all experts and commentators regarding how tight the relation between Russian modern wealth and oil prices. But there is a lot of controversy about the energy price prognosis. Since last few years clearly demonstrated energy prices have been manipulated, perhaps, like FX Networks’ “Damages” showed, guessing and gambling is what we are left with.The only thing we might be confident is the new US administration is not up to promulgating oil prices as hard as the previous one.

2009-02-02T08:25:00.000-08:00

Today’s Moscow Minute will be on a bright spot of the future in Russian telecommunications. VimpelCom just finished a Wi-Fi project involving dozens of Russian cities. Look for wireless access to be a huge area for growth in Russia’s future, possible even bigger than you might have imagined. There are reasons common to any country such as consumer convenience and demand. There are reasons unique to Russia as well, as it makes economic sense to cover large distances with wireless as opposed to conventional wire or even fiber optics.

2009-01-29T12:02:00.001-08:00

The past months have brought nothing but bad news to the global oil industry, but for Russian oil companies, there is a modest positive development to report on. Prime Minister Putin signed a bill lowering the tariff on oil exports today. The reduction will take place in February. Export tariffs occupy a percentage of every barrel of oil exported so any reduction will be like an increase in the market price of oil and should be seen in the bottom line of these companies immediately.

2009-01-26T09:48:00.000-08:00

An addition and correction to yesterday’s entry of the Moscow Minute. While we are predicting the natural gas crisis between Russia and Ukraine, we were talking about the near-term to intermediate-term, of course not long-term. The reasons for this involve the complexities of the Ukrainian political environment. If the anti-Russian candidate wins the next presidency of Ukraine, all bets are off and another crisis is very possible. The reasons for this include political and nationalistic identity as well as economic motivation. If the pro-Russian candidate wins, look for a much more harmonious relationship for much the same reasons. Areas of potential development and cooperation are many in the fields of business, trade, and foreign policy. We will be watching elections in Ukraine for their economic impact upon Russia, and you should too.

2009-01-25T10:34:00.000-08:00

Many of you following the recent natural gas controversy between Russia and Ukraine might be wondering if it is really over. No sooner had the agreement been signed, than rumblings were heard from Kiev voicing protestations the agreement was unjust. So, is it really over? Our answer is most assuredly yes. Explaining the dynamics of Ukrainian politics would require more room than today’s Moscow Minute has to give. A brief explanation of the situation is there are competing political interests in Ukraine posturing for upcoming elections. So if the question do these headlines and quotes mean anything other than normal political fighting, that answer is no. There were rational and logical reasons of self-interest why Ukraine was a participant, arguably the instigator as well. Their public relations have taken a beating with their EU allies. If another situation were seen to be clearly instigated by Ukraine, not only is it a confrontation they can not win, relations with the EU would go from bad to worse, which would have direct economic consequences for Ukraine. This is just another example of following the news and learning to see what is not explicitly stated, and learning to ignore much of what does make it to the headlines.

2009-01-25T07:38:00.001-08:00

Many people might be wondering with the rapid deceleration of the Russian economy that has occurred over the past six months, why hasn’t real estate dropped more drastically all over Russia, especially in Moscow? Although it has fallen somewhat, and certainly the construction industry and any new project have been certainly stopped in their tracks, it still has not dropped to the degree one might have expected. One major reason for that has been is that many Russians in times of economic uncertainty hang on to their apartments as a hedge against a depreciating Ruble. In many countries gold becomes a source of economic security, in Russia it is real estate. Real estate is lightly taxed compared to most countries in the West, so there is no real burden in keeping a property indefinitely. Russians are also increasingly hording Dollars and Euros at rates not seen for many years. Thirty one billion dollars is the figure households have increased their holdings of foreign currency over the past three months alone. What the immediate future holds in terms of the devaluation of the Ruble is hard to say, so many factors are involved it is as hard to contemplate intelligently as any major economy around the world.

2009-01-07T12:15:00.001-08:00

A member of the Duma was recently quoted urging the government to reduce the VAT tax instead of or in addition to the reduction in income taxes that are being enacted and planned. This does have a certain undeniable logic to it as the companies that would benefit from a reduction in income tax represent a small proportion of the overall total and most of the companies in dire need of assistance will not see any. As was mentioned, a VAT tax would benefit everyone, encourage economic growth long-term and in the near-term assist many companies teetering on the abyss survive the economic crisis. It’s a rare economic policy where the more equitable decision is more than likely the better decision.

2009-01-05T09:04:00.000-08:00

A dispute between Ukraine and Russia over natural gas costs is making worldwide headlines. While it is difficult to predict where the events will lead in the near-term, you might be asking what long-term effects this will have upon Russia in general and Gazprom in particular. A major pipeline bypassing Ukraine, called North Stream is currently under construction and will be completed in the next two to three years. Additionally, in the approaching years look for more natural gas exports to grow and pipelines to be built between Russia and its Asian neighbors, as agreements have been signed in the past couple of years, they will come to fruition in the years after North Stream is completed. So while it is difficult to predict how negative the current dispute will get and difficult to gauge its impact, the approaching years should see less vulnerability to the Russian energy industry.

2008-12-24T09:20:00.001-08:00

Looking into next year, we recommend Gazprom bonds, and not just for reasons of attractive yields, one of the largest energy companies in the world, and the great potential for long-term appreciation. The bottoming of natural gas prices is another good reason as well. You must also consider what the energy policy of the United States will be for at least the next four years and what effect that will have upon the world. The new administration will almost definitely join world global treaties limiting the type of pollution found in inefficient automobiles and standard coal fired plants. This means a greater emphasis on alternative energy to keep CO2 levels down, but from a practical standpoint alternative energy is many years away from being produced on a mass level. So what we are left with is not just more nuclear power, but much more natural gas produced power plants, and this is not taking into consideration natural gas powered automobiles. Natural gas is considered a practically benign fossil fuel because of its low pollution and because it is ready to help meet the energy needs of today, it will only increase its utilization.

2008-12-22T11:53:00.000-08:00

There has been much talk and speculation concerning Russia joining OPEC. While current market conditions make it a possibility with some logic, our prediction is it is not likely to happen. Before asking if its is politically feasible or probable, one must be familiar with the drilling realities of Western Siberia and the Arctic regions. Because of the extreme environment, drilling can not just be stopped, put on hold, and started again later at the flick of a switch. If drilling is stopped in that environment, equipment will break and the fields will have to be drilled all over again, with new equipment. Storing the oil instead of exporting would create its own set of problems. Russia joining a natural gas group of exporters is a much more likely scenario. How likely though, remains to be seen.

2008-12-17T08:40:00.001-08:00

The Russian equity markets are up over 20% off their lows, but for this momentum to sustain itself and continue into the future, there must be several things fall into place. Firstly, global commodities (including energy) must stabilize and demand must return. There was some overproduction when energy prices were at their height and an equilibrium must be reached, in other words, current inventories must be brought down. Secondly, sooner or later people will look around and recognize the permanent reality of a weaker dollar, and when this happens it will only compound the effect of rising commodities as they are still priced in dollars. Thirdly, people must emotionally learn to deal with a changed world and realize it is different than it used to be, but the world will not end anytime soon, they must break out of their paralysis of thought and action they are in. I don’t think all these things will happen in the next week, but, it is realistic to assume all will happen in the near to intermediate future, and when they do, a gradual price increase in commodities might give way to a sudden meteoric rise.

2008-12-15T09:53:00.001-08:00

With the price of commodities and commodities linked stocks having undergone devastating price decreases over the past half year, now might be a strange time to talk about their resurgence, yet the fundamentals today look better than they did even a month ago. The U.S. Dollar appears to have been knocked off its perch at the top of world currencies in a lasting way, as it has retreated significantly just in the past week. Not even mentioning the long-term growth in the world’s consumption of most natural resources, the weaker the dollar gets, the more expensive almost all commodities become, that is an unavoidable fact, something that bodes well for Russia. Oil is approaching 50 dollars a barrel, at least temporarily the talk has stopped about 25 dollar barrel oil. To assist large Russian companies get through short-term difficulties until the world economy stabilizes, the government has announced a formal plan to lend assistance to the 1,500 largest companies in Russia.

2008-12-12T13:27:00.000-08:00

Paradoxically, some of the expected weakening in the retail and real estate sectors has been offset by Russian’s reaction to the sliding Ruble, and the expectation the government will let it slide further. Granted, what we are finding is anecdotal stories, not scientific surveys but they can be indicative of millions of people’s behavior. For instance, if people expect their Rubles to lose value, they are currently purchasing everything from apartments to jewelry as a hedge to a falling currency. These are the sort of things we’ve been noticing, that in the short-term at least, have an impact upon the macro economy.

2008-12-10T07:30:00.001-08:00

We’ve reported for quite some time now on the challenges facing Russia’s energy industry as new fields of natural gas and oil must be found and developed to replace more mature fields with declining productivity. This need is made even more acute and urgent by the government’s stated intent not only to maintain current production rates but to increase them. We’ve recently discussed about financial incentives the government is enacting or plans to enact to encourage new exploration and development. Recently, in an enormous oil field in the Barents Sea, Gazprom has indicated foreign energy companies will be encouraged to play a role in its development. This is another part in the strategy to develop Russia’s vast energy resources.

2008-11-28T10:58:00.001-08:00

It wasn’t that long ago that we recommended avoiding equity stakes in most major oil companies for valuation reasons. As times have changed, we have changed our recommendation of the industry for fundamental reasons. First, like all global oil companies, the major Russian oil companies have been rocked by oil prices falling by almost two thirds as well as still being assessed at tax rates from when prices were high. We feel now is a good time to put these companies on your radar for the following reasons. First, we feel oil prices have bottomed and while we are not predicting exactly when they will rebound, rest assured they will in the not too distant future. Secondly, the lowering of export taxes will be lowered at the request of the government as increased oil production is a top priority. Lastly, these stocks present a compelling story just on a valuation basis, these bargain prices don’t happen often and at some point you might consider getting in on the ground floor.

2008-11-26T13:46:00.001-08:00

President Medvedev, currently on a tour of South America has proposed, along with the President of Brazil, a four country summit meeting in Russia of the BRIC countries, Brazil, Russia, India, and China. This could be an interesting development in addition to, or to complement the future possible admission to the G8 of all the four leading, emerging economies in the world.

2008-11-24T09:30:00.000-08:00

It might not be equal consolation for a global economy in recession, but inflation is not a problem in Russia presently, as everything from fuel to food, clothing to housing have stopped their inflationary trends of the past few years and have decreased in their cost. The Russian electric industry will be at least partially deregulated in the near future and hopefully any price increases resulting from this will be muted by price decreases in other areas. Long-term, this is good news for Russia as now people and businesses will be confronted by a more realistic cost of energy, thus encouraging them, in acts both big and small to be more efficient in energy’s use.

2008-11-21T06:28:00.000-08:00

As part of efforts to combat the slowing of Russia’s economy, the government announced plans to cut the business profits tax substantially, to settle around 20%. Although this will add to the reduction in government funds, it is a good step for combating the recession now and a way to limit the severity of the effects. This is the way most countries should act, when the economy is suffering, targeted tax cuts to spur economic activity and lessen both the severity and duration of the recession.

2008-11-19T07:46:00.001-08:00

In a positive sign things are returning to normal (at least as much as can be expected in these globally tumultuous times) the EU has agreed to support Russia’s admission to the WTO. This all but assures admission and is likely a sign the EU is eager for a more harmonious relationship with Russia on everything from energy policy to trade. Speaking of trade, President Medvedev is looking to promote Russia’s business interests in Latin America as he attends the APEC summit beginning this weekend.

2008-11-15T13:36:00.001-08:00

Like the rest of the world we are waiting with anticipation for the G-20 meeting to wrap up. The administration in Moscow has indicated their desire for the Ruble to become a regional currency, and they have just signed an energy agreement with Belarus to price oil in Rubles. The dollar is coming under assault from an unexpected direction as Sarkozy of France has indicated his desire that the world diversify from relying solely on the dollar. Before I would have said this trend is going to develop slowly, how slowly I am not sure as the meltdown in the U.S. has changed the rules of the game.

2008-11-13T10:37:00.001-08:00

If the question of the day is what does the approaching Obama administration mean for global energy prices. I believe I have a positive reading on the situation. Obama’s comments on the campaign trail reveal someone who is somewhat open on the issues of clean coal technology and even nuclear energy and we all know the importance he places on renewable energy. It is clear though, he opposes widespread offshore drilling, to mention nothing of what he believes regarding drilling in Alaska. With oil prices so low, one of his first acts is rumored to turn back some offshore drilling the Bush administration had planned to allow. In the intermediate term, this means when oil prices invariably start to climb again, the move up will be even more pronounced and long-lasting with much of America’s domestic production starting to decrease and major impacts of clean energy being several decades away.

2008-10-24T11:56:00.000-07:00

Most of Russian new riches are losing wealth everyday. The richest businessman Oleg Deripaska might lose 25% of Norilsk Nickel, Roman Abramovitz’s Evraz Group shares dropped from $118 on a pick to $10-12. Will he sell Chelsea Soccer Club? Doubt. But fleet of private jets that belong to Russian oligarchs will be slimmer. Don’t forget, most of the assets have been leveraged and I won’t be surprised seeing a few big bankruptcies.

2008-10-23T08:02:00.001-07:00

Dollar was almost 27 rubles on today’s MICEX trade. Russians are in panic again. They don’t trust a dollar but trust a ruble even less. There are lines of people converting to dollars. Why this is happening? Please read or order our special “crisis update newsletter”.

2008-10-21T06:01:00.001-07:00

Russian real estate business has been growing 10-15 % a year until now. The financial crisis put a crunch on high margins and profits of developers and agents. 35% of Moscow RE is mortgaged and banks used to provide home equity loans for apartments based on the market price of 7-20 thousand dollars per sq. meter. Now market is down 20-40 % and banks are left with questionable loans. We will monitor the residential construction bonds and inform our clients on any developments.

2008-10-13T05:54:00.001-07:00

Russian banks stopped lending to air carriers. What does it mean to the fastest growing industry in Russia? Russians would not longer enjoy relatively inexpensive tours oversees. The number of operators will be smaller and airfares will double or more. The biggest problem is fuel cost. Russia produces 9 mln tons jet fuel a year. 174 operators consumes only 5 mln tons. 1 mln tons gets burned by Russian Air Force. The remaining 3 mln tons gets exported. Since Russian airlines spend 60-65% of all costs on fuel and always leverage it, no more free lunch. Only smart, energetic, competitive airlines will survive.

2008-10-07T05:04:00.001-07:00

Russian Fed Reserve bailed out a few Russian banks in the amount of 1 trl rubles. Including Sber - 500 bln, VTB - 200, Rosssel - 25. Most of the banks would be bailed out and no signs of favoritism or vice versa like Richard Fuld's.

2008-09-24T10:46:00.001-07:00

Almost everyone in the West upon reading their financial papers knew Warren Buffett had invested 5 billion dollars in Goldman Sachs. Many people took this as a signal of a bottom, or at the very least of a great value in stocks that were down, but not out. Russian billionaire Mikhail Prokhorov is taking a 50% stake in Russian giant investment bank Renaissance Capital. This is a development that could have even more meaning to RecCap than Buffett’s investment in Goldman.

2008-09-23T11:57:00.001-07:00

A kinder, gentler Kremlin. Perhaps or perhaps not, but sometimes symbolism does matter. In recent months Prime Minister Putin had stern words for the Russian metals company Mechel, causing its stock price to drop dramatically. On a recent trip to Kazakhstan, President Medvedev met with senior company officials and was very pleasant. Yes, a pleasant meeting really is something that can affect an industrial giant’s stock price. Stay tuned for more developments.

2008-09-19T05:38:00.001-07:00

After a day and a half of suspended trading markets are set to reopen with the government injecting funds into the system and promising immediate tax reform. Among the changes are a drastic decrease in the large national VAT tax. A significant decrease in the export tax on oil will be enacted with more reductions promised in order to spur decreasing production. It seems drastic times are causing drastic measures to be taken that should have long-term positive results, long after the turbulent happenings of today become a footnote.

2008-09-17T08:57:00.000-07:00

With world financial markets in turmoil and no end on the horizon, what is a savvy global investor to do? We’re advising many of our clients to park spare cash in short to medium term fixed income securities. This will enable you to take advantage of recently risen interest rates in Russia while choosing a financially solid company, of which there are many. You’ll still have the flexibility of not tying up your money so when the market does bottom, your ready to jump at the opportunities.

2008-09-16T07:01:00.001-07:00

RTS fell to a record 1131 points today by 5 pm Moscow time. The exchange has been closed for an hour to prevent panic. Sberbank lost 20%, VTB – 30%, GazProm – 15%.The world crises affected all exchanges around the globe. We will monitor the situation and advise our customers what to expect…

2008-09-15T08:25:00.001-07:00

Recent events in South Ossetia have delayed, but not derailed economic and political reforms championed by President Medvedev. In a recent speech he discussed the need for reforms to boost entrepreneurial efforts in the country and the need to encourage small and medium sized businesses as they are the future engine of growth. We find these words encouraging and although they were delayed by recent events, we will be watching for actions as the next phase from outlining the problems and issues.

2008-09-12T10:09:00.001-07:00

We don’t know, and of course and don’t want to imply that Minister Kudrin is an avid reader of our daily commentary, but as we predicted, the markets took his commentary concerning not lowering energy taxes too severely. Kudrin just announced he might be willing to compromise on oil company taxation. The translation is someone must have mentioned to him to stop rattling the markets and get with the program.

2008-09-10T10:33:00.000-07:00

Two days ago the MICEX tumbled 9.1% and RTS fell over 7%. Part of the panic was due to comments by Finance Minister Kudrin stating oil taxes should and will not be rolled back. The market reacted negatively to these comments but please note, Kudrin while holding a high level office, does not determine what will happen, and Medvedev is on record as supporting these reductions in taxes for energy production.

2008-09-05T17:12:00.000-07:00

More pain in Russian Financial markets as the RTS fell 3.76% today in heavy trading. Some of the hardest hit sectors were Consumer & Retail off 7.00%, Metals and Mining off 6.65%, and Financials off 6.54%. We won’t mention the bond market today, but you can imagine how it did. We’ll give advice now to two separate groups of investors. To those already in the market, don’t sell and especially don’t sell now. If you have chosen your securities well, they likely will come back, sooner rather than later. Remember you are in an emerging market and your horizons should not be for the short-term, and it might be cold comfort but you are still doing better than your peers who have invested in two of the other four emerging economies. To investors considering making a move, when there is blood in the streets you should be readying your research to make a move. It is not necessary to make a move immediately but significant market corrections do not happen every day and the serious investor cannot ignore the opportunities they present.

2008-09-02T07:01:00.001-07:00

It appears the Russian markets are on the rebound, or at least have stabilized. Pursuing economic opportunities in Asia as a counterbalance to economic dependence, Prime Minister Putin is touring Central Asian countries and signing treaties ahead of an important regional economic summit. Starting in 2009, Russia will begin major oil shipments to the region.

2008-08-29T09:07:00.000-07:00

The Russian stock market has declined 14% since the start of the Georgian conflict. Yet, you should feel good as China’s market has been down 50% and India down 36% since the beginning of the year. This tells me Russian markets were not over-inflated in the first place like many emerging markets.

2008-08-27T07:56:00.001-07:00

As a follow-up to yesterdays “Minute”, the European Union just released a statement encouraging Russia to enter the WTO. This was in response to Russia’s statements it may roll back certain reforms it was going to make to meet WTO requirements. It is still unlikely though, WTO entry will be achieved by the end of 2008. The significance of this is that even in the middle of harsh words being exchanged from the recent military conflict, the EU, Russia’s most important trading partner is unlikely to start diplomatic or trade sanctions, although the Russian markets, at least for now have reacted like they are. Keep your intestinal fortitude, be a smart investor, and of course ask us where the opportunities are presenting themselves.

2008-08-26T11:22:00.000-07:00

A question we are being asked with some frequency by our Western investors and other interested observers is how will the conflict in Georgia hurt investment in the region. In the short term of course, war is bad for business if for no other reason it makes people nervous and for other obvious reasons. But regarding this conflict specifically, we see the dips as a reason to be big buyers of securities that have been punished unfairly. Firstly, commodities still make up a large share of the Russian economy, they are at all time highs and the world needs them even if certain countries had the will to carry through with them. There will be no wider military conflict, the insanity of that proposition should be apparent to anyone that contemplates it. Economic sanctions would hurt Western countries to a much greater degree than Russia as Russia exports mainly commodities to the West, which they need and must buy regardless while dozens of the largest Western companies rely on Russia to be a major catalyst for growth. We are left with stalemate, which is fine by us. Take everything that a talking head on a 24 hours news network and every speech by a politician looking for hype with a grain of salt.

2008-08-21T13:01:00.000-07:00

In the approaching months we’ll see what direction taxes will go but in the near-term it is a confusing situation. For instance, the Finance Ministry would like to add a tax to payrolls of 3% for pensions, needless to say, business opposes this. Yet, Medvedev is planning a conference with some of the nations leading business figures to see what the government can do about lowering taxes. We’ll let you know what effect this will have on the economy in general and your investments specifically.

2008-08-14T07:06:00.000-07:00

How would Russian-Georgian conflict affect bond market? Some foreign investors could pull out in a short term but they will be rushing back in a few months for the slightly higher corp bond interest rates.

2008-08-05T10:26:00.003-07:00

The default of Marta Finance could be a warning sign for potential investors who rely mostly on ratings and financials. Look for our comprehensive analyzes on companies management and their records.

2008-08-05T10:26:00.001-07:00

As the old saying goes, “if you can’t beat them, join them”, and that is what one of the world’s largest energy companies is attempting to do. It has been well publicized the disagreements between western energy firms , Russian energy firms, and the Russian government. Shell is proposing to swap an oil field it owns for an equity stake in Sibir Energy. No word yet on the firm’s reaction or even the government’s reaction.

2008-07-31T07:07:00.000-07:00

One of the bonds we’ll be featuring will be from Russian Railways. This company is a natural monopoly with most of Russian industry and much of the civil population depending upon it in one way or another. This means of course it has pricing power to ensure its profitability, assure revenues, and of course make sure you the bondholder, is assured of a safe investment. This company has expansion plans in the future so expect bonds to debut in the approaching months.

2008-07-29T15:27:00.000-07:00

It’s not a sleepy summer with the Russian automotive industry as two major deals could be on the verge of happening. First, Daimler is considering building a trucking plant in Russia or just as likely purchasing a minority stake in Russian truck manufacturer KAMAZ. General Motors is in discussion with GAZ to build an auto plant to begin manufacturing a new mid-sized vehicle for the largest automobile market in Europe. This will require capital of over a billion dollars. In both cases, expect announcements sooner rather than later.

2008-07-23T07:38:00.001-07:00

One way for our American investors to profit from high inflation is telecommunications stocks. This is an industry that has seen meteoric growth in Russia and Ukraine yet still has additional market growth ahead in addition to new services being bundled together for its customers. Due to inflation and an appreciating Ruble, expect more revenues and equity prices to reflect this.

2008-07-21T10:06:00.001-07:00

Through June 2008, the inflation rate stood at 15.1% year over year and up 1.1% vs. the month before. As high as this sounds, inflation rates were even worse in cities such as Moscow and St. Petersburg. The central bank will likely be raising rates to contain inflation and reign in an overheating economy, this means good news to fixed income buyers.

2008-07-18T06:48:00.001-07:00

Russian industrial production was up almost 6% in the first half of the year. Keep in mind, much of the government’s planned infrastructure development plans have yet to be implemented (in other words the money is not flowing through the system yet). Yes, we know what stocks should benefit from this money, just ask us.

2008-07-16T06:35:00.001-07:00

Even more news on growth from Russian aviation. News from the Farnborough show has them adding to their order backlog for the Super Jet-100 regional jet. Already they have over 70 firm contracts with 30 options signed this year. Well over 100 additional contracts are expected to be signed by the end of the year, and this is in a down market for airlines. 30 contracts and 30 options were signed at the Farnborough for the Tu-204, a 200 seat modern jet for deliver in the next 2-4 years.

2008-07-14T08:35:00.000-07:00

Exiting news in the world of Russian aviation. It was just announced the MC-21 project will receive over 6 Billion dollars in funding to bring the mid-sized regional jet to market. Its capacity will be in the 150-210 passenger area with much of the plane being made from new composite material. The competition for this plane will be the Boeing 737 series and the price is projected to be 35,000,000 Dollars with it debuting in 2015.

2008-07-11T06:02:00.001-07:00

Putin will be in charge of a commission that will look into foreign acquisitions of Russian companies in certain industries. What does this mean to our average investor? We suggest ignoring this as well unless your plans included purchasing a telecommunications or oil company. We have always advocated purchasing bonds and selected equities as where you want to be looking and this will have no impact on the average investor. Just yesterday the Dollar slipped a little bit more vs. the Ruble, bringing joy to many of our investors.

2008-07-09T10:58:00.001-07:00

Many investors and potential investors are wondering what impact the disagreement between the West and Russia over missile defense and the uncertainty over the new U.S. president and what the new administration’s policy will be. We strongly advise our clients to ignore what is in the news section in this regard. Capital will go where its best opportunities are. As recent proof, despite the chilly government relations, business between Russia and the UK has never been more active.

2008-07-04T07:45:00.000-07:00

Billionaires Prhokorov and Deripaska have lately disclosed their plans to invest in Russian technology such as renewable energy, computers, and nano-technology. This sounds much like the government’s official language about the importance of technology to the future of Russia and announcing funding to implement it. Of course intellectual property must be safeguarded by laws Medvedev is currently considering, as a brainpower society is only as good as the laws that exist that protect it. It will be interesting to see how these two issues develop in the near future, as having a legal framework is important to the development of Russia’s new industries.

2008-07-03T08:27:00.001-07:00

In a situation of good news- bad news, Russia’s oil production continues to trend down in recent months, but legislation to give the industry tax breaks made significant progress in the legislature. As part of a larger design to change how the government works, Medvedev announced certain powers will be transferred from the Federal sphere to the state level, a significant change over what has happened over the past 8 years. How significant, we’ll have to wait and see. He announced major legislation will be passed and signed early next year to change the system.

2008-07-01T07:42:00.001-07:00

Look for the government to encourage Ruble appreciation as the latest inflation statistics don’t look positive. For the first half of the year they hit nearly 9%, showing no signs of abating. Inflation is one of the few areas of immediate concern for the economy, but as economists know it has the power to bring down all the other successes, we see it being addressed by the government through Ruble appreciation.

2008-06-30T09:08:00.001-07:00

There should be no interruption of Russian gas supplies to Europe this winter as Ukraine has fully paid its debt to Russia for gas used. Additionally, there were high level meetings between Putin and Timoshenko in order to iron out differences and reach a mutual understanding. The bad news for Ukraine is the possibility their gas prices could double this year due to drastic price increases by the Central Asian states where they get their gas.

2008-06-26T08:28:00.001-07:00

With the approaching break-up of UES, we continue to like the Russian basic materials industry most of all, be it nuclear or companies that will benefit from road construction (the need for Moscow alone will exceed several dozen billion dollars just to keep it maintained) in the next several years. Additionally, there is talk of opening up the power industry to additional foreign investment. We like these industries regardless of the price of energy going forward because they will fill a badly needed area of improvement for Russia and will be among the last to see funding cut back upon because of their importance. Fast growth, slow growth, or no growth, basic industries are a growth story waiting to be told.

2008-06-24T06:37:00.001-07:00

Foreign financial companies could be on the shopping list as a Russian billionaire is rumored to be acquiring up to 9% of Deutche Bank. Expect to see more of this as this is a hugely profitable industry for Russia to invest in and especially with companies that are active in Russia and Russian’s are already familiar with. This is consistent with the government’s urging to invest overseas and makes sense given the stabilization fund will now be invested in equities and bonds of private companies from around the globe.

2008-06-20T07:25:00.001-07:00

Today’s Moscow Minute is about another of Russia’s commodities, this, a renewable one, grain production. Over the past 10 years they have skyrocketed from nowhere to among the top three exporters in the world. Among the major reasons for this has been the injection of money from the federal government and the emergence of giant foreign corporations bringing capital and technology most local farmers do not have access to. It should be noted these foreign companies are on the cusp of profitability as land costs in Russian agriculture are a fraction of anywhere else in the world and there are still many millions of acres of arable land yet to be developed. It should be noted once problems of lack of capitalization, technology, development of additional land, and even the expansion of ports to transport the grain have been worked on, Russia could one day soon be the largest exporter of grain to the world and be the breadbasket to the planet.

2008-06-19T10:07:00.000-07:00

Opportunities in the electricity industry abound as the national monopoly UES will be broken up in a matter of weeks. The country’s demand for additional generating capacity will be spurring new production to come on line in the approaching years and the privatization of the industry should give plenty of room for large and small operators to benefit. Prices will likely rise, reflecting true market prices as well. Opportunities can and will be found in both equities and fixed income.

2008-06-17T07:10:00.001-07:00

JBIC (Japanese Bank for International Cooperation) has agreed to fund a major oil and natural gas field in Eastern Siberia. The profits for this could be immense, and on a positive note for Russia the gas would be going to eager customers without going through third countries that might cause a disruption. Specifically, I am talking about the transportation of LNG to Japan, South Korea, and the West Coast of the U.S. Its customers should be pleased about added supplies and Russia wins in this situation as well as they seek to diversify their base away from Western Europe.

2008-06-11T13:23:00.001-07:00

Conflicting viewpoints about Russian current growth and future growth rates. Goldman Sachs predicts Russia is in danger of slowing to a 3 percent growth rate, obviously much lower than government forecasts. On the other side, Finance Minister Kudrin stated the Russian economy was growing too fast as evidenced by infrastructure that can’t keep up, labor shortages in certain areas, and accelerating inflation rates. We’re inclined to believe in the Kudrin viewpoint for the foreseeable future, as energy and other commodity prices continue to be the rock the economy is built upon and other industries show promise.

2008-06-10T07:33:00.000-07:00

Russian Central Bank has just raised rates by a quarter point, and we are predicting more increases in the near future. Inflation is averaging from 50-100% over what the government desires, and this was before oil skyrocketed to the 135 to 140 dollar a barrel range. What does this mean to you, the foreign investor? You guessed right, higher interest rates with an appreciating dollar and scores of new issues entering the market will present great investment opportunities.

2008-06-05T13:21:00.001-07:00

Russia going Green? Medvedev announced plans for Russia to adhere to the Kyoto protocols and reduce emissions. Could this mean even more nuclear power plants domestically, allowing more coal for export, a commodity in great demand and growing. Like everyone else, what this policy shift could mean in terms of profit making opportunities, we’ll be waiting and watching what emerges.

2008-06-04T12:22:00.001-07:00

In a vote of confidence on the future of the Russian economy, as well as to meet demand and make money, American Airlines announced a Chicago-Moscow flight that will eventually expand to seven days a week. This will make it even easier for more of American business to access Russia, as most American-Russian flights fly from Atlanta, Washington, and the New York area.

2008-06-03T07:41:00.001-07:00

As part of efforts to establish domination over Central Asia’s natural gas assets, including the gas itself as well as the pipeline, Gazprom has offered to purchase Azeri gas at market prices, no word yet on a response from the government of Azerbaijan. We also have a geo-economic-political prediction to make concerning Russia’s relationship with its Baltic neighbors, which sometimes has been contentious. As Russia builds its pipeline, beneath the Baltic, bypassing its neighbors and thus eliminating the need to sell them gas on their own terms, look for a more conciliatory tone to emerge. This has more to do with pragmatism than the goodwill of nations, energy opportunities are limited and costly, especially in 2008 and the foreseeable future.

2008-06-02T10:19:00.000-07:00

Ural Metal and Mining Corporation will be acquiring a 51% stake in a Czech plane manufacturer in accordance with government encouragement for Russian businesses to be active in diversifying to other countries and becoming truly international players. At first glance, a metals company might not be a natural fit for an aerospace company, but the most important parts of an airplane by value, weight, and quantity are metals and alloys. Metal composites will only be of greater importance in the future and a company that can fully integrate areas such as mining, refining, forming parts, all the way to the construction of the aircraft, could very well have a competitive adavantage.

2008-05-30T11:13:00.001-07:00

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.

2008-05-29T12:14:00.001-07:00

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.

2008-05-28T09:44:00.000-07:00

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.

2008-05-22T08:13:00.000-07:00

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.

2008-05-21T07:11:00.001-07:00

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.

2008-05-20T08:18:00.000-07:00

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.

2008-05-19T10:03:00.000-07:00

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.

2008-05-16T15:39:00.000-07:00

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.

2008-05-15T09:32:00.001-07:00

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.

2008-04-30T06:19:00.000-07:00

Russian government leads toward centralized and perhaps planned economy. Since recently companies like OboronProm, Rostechnology and others forcefully concentrated many smaller companies under their umbrellas. What are the pros and cons? To be discussed…

2008-04-14T10:53:00.000-07:00

I like the latest news from Moscow on tax breaks for the oil industry, what it means for the present and what it could mean for the future. The Russian oil industry faces a decline in production this year for the first time in many years. This is happening as productive fields start their decline and many of the new fields are in areas making them expensive to explore and produce. The government has recognized this crisis and has granted the first of what we hope will be several tax breaks to the industry to encourage production.

2008-04-09T10:33:00.003-07:00

For our international investors looking to possibly purchase fixed income here in the near future, we suggest putting that off, if only just for a little bit. Russian central bank officials are raising their inflation estimate for this year and have suggested raising interest rates soon. If this happens, rates for fixed income will surely go up and be even more attractive.