Archive for the ‘Russia’ Category

Growth in Russian economy, but no champagne corks yet

russian economyRussia’s economy may have expanded as much as 4% in the last quarter of 2009 following a timid return to growth in the third quarter, according to Deputy Economy Minister Andrei Klepach speaking at a conference in Moscow last week.

The economy may show “quite strong growth” of between 3% & 4% in the fourth quarter from the previous three months, Klepach said. This is an interesting claim, and doubly so given that Klepach has been quite cautious so far this year in his claims. Evidently the rising price of oil and the return of some financial flows into Russia is firing up optimism.

GDP expanded 0.6 percent in the third quarter as compared to the second quarter according to Economy Ministry data out this week. Whilst the economy also grew 0.5%  between August and September, with month-on-month growth being due to a “good grain harvest,” increased meat production and an improvement in manufacturing output, the Economy Ministry said.

Nonetheless the economy still managed to register an annual decline of 9.4%, compared with a 10.9%  record annual contraction in the second quarter.

Certainly foreign investment into Russia is on the rebound. On Oct. 19th Klepach predicted the country may see a small capital inflow this month, and no net outflow in the fourth quarter. This compares with a net capital outflow of $31.5 billion in the third quarter. In September, the net outflow was $6 billion, down from $16 billion in July. This indicates that foreign investors are returning to Russia’s capital markets, while Russian companies and banks are increasingly able to access international markets. However,  this improvement isn’t necessarily great cause for celebration. The increase in foreign investment is largely being driven by bank lending and portfolio investment, which can easily go into reverse.

This must most certainly be one of the reasons behind Russia’s central bank recent decision to lower key interest rates by half a percentage point for the second time in a month, in a bid to both stimulate lending & also to stem the inflow of funds & the rise in the value of the ruble which is making the work of restoring competitiveness to the manufactured sector all the more difficult.

Six million Russians were added to the government’s official poverty count in the first quarter. By the end of 2009, 17.4% of the population or 24.6 million people will be living beneath the subsistence level of $185 per month, almost 5% more than before crisis, according to World Bank estimates. Unicredit analysts forecast that the number of Russians with disposable incomes of more than $1,000 per month will fall 48% this year to about 13.6 million, or roughly 10% of the population.

Russia’s consumer prices were flat in August, the lowest monthly reading in four years, but annual inflation was still running at 11.6%. Producer prices, on the other hand, are falling fast, and declined an annual 10.8 percent in August, compared with a record 12.3 percent in July. Today’s decision follows the announcement earlier this month that the Russian economy suffered a record economic contraction in the second three months of the year and refelect the growing recognition that the country now faces a painfully slow recovery. Just how painful things might become will form the subject matter of this report.

The full report from Bank Rosii can be accessed here : Country Briefing Report

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Russia, Italy, Turkey confirm Samsun-Ceyhan pipeline deal

ENI logoThe Vice Prime Minister of the Russian Federation, Igor Ivanovich Sechin, the Russian Minister of Energy, Sergei Shmatko, the Minister of Energy of the Republic of Turkey, Taner Yildiz and the Minister for Economic Development of the Italian Republic, Claudio Scajola, signed today in Milan a joint statement concerning the construction of the Samsun-Ceyhan oil pipeline between Turkey’s Black Sea coast and its Mediterranean coast.

The agreement testifies the level of cooperation among the three Governments, in particular in the energy sector, and it underlines their joint commitment to enhance energy security in their respective countries and in the European market through the diversification of transport routes, as well as the protection of the environment.

In line with the agreements signed in Ankara on August 6th 2009 by the representatives of the Russian Federation and the Republic of Turkey, which envisage the participation of Russian oil companies in the Samsun-Ceyhan Project, the Ministers agree that this initiative will contribute to strengthening security of supply, to protecting the environment and to enhanced cooperation.

At the same time, representatives of Eni, Calik Holding, JSC Transneft and Rosneft, the energy companies involved, signed a Memorandum of Understanding which envisages the commitment to discuss the definition of the economic and contractual conditions for Russian companies to participate in the Samsun-Ceyhan Project in order to ensure the volume of crude that would guarantee the economic sustainability of the project.

Eni (NYSE:ENI) has been heavily involved in the oil pipeline project since 2005 and will play a leading role in its realization. In 2006, Eni bought 50% of Trans Anadolu Pipeline Company (TAPCO), the company designed for the realization and management of the Samsun Ceyhan pipeline.

The project has been developed taking environmental issues into consideration and adopting measures which comply with the most rigorous international safety standards. Furthermore, in order to cause minimal disturbance to the environment and existing infrastructure, the pipeline will be built along existing pipeline routes.

The Samsun-Ceyhan pipeline will facilitate safer transport across the Bosphorus and Dardanelles Straits as well as reducing the impact on the region’s complex and delicate ecosystem.

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Kudrin Upbeat on oil, should we upbeat on RSX ?

Alexei KudrinRussia has been hard hit by the current economic crisis & especially by the decline in oil prices this year. According to Economics Ministry data, Russia’s GDP declined by 9.3% in July 2009 year-on-year and 10.2% in the first seven months of the year. Energy products, including crude oil & natural gas, accounted for 65.5% of exports in the first half, while metals made up 12.1%.

According to Finance Minister, Alexei Kudrin, the Russian economy will be on the rise again as early as in the third quarter of 2009.

“We still do not have the final data for the second quarter, but we expect Russia’s economy to grow in the third quarter compared to the second quarter, and the third quarter will mark the end of recession,” Kudrin told a news conference whilst in London attending the G20 summit

Russia has recently raised forecasts for the price of oil and is now looking at revising its views on gross domestic product (GDP), Kudrin said last week. The Economy Ministry now sees Urals oil averaging $57 a barrel this year, up from the $54 forecast previously & the average price of crude is projected to increase gradually to $58 in 2010, $59 in 2011 and $60 in 2012.

With 40% of  the Market Vectors Russia ETF Trust (NYSE: RSX) predicated on energy, it is plain that energy prices need to remain stable if not advance in the light of the news above, if it is to become more attractive to risk averse investors. Trading at $23.54 off of a 52 month low of $10.34, it is still a long way off of its high of $40.75.


Standard & Poors retained it’s BBB rating on Russia last Thursday, which would seem to allay some fears, as it was widely expected that the rate would be cut. The ratings agency also noted that by the end of 2012, with net debt levels at 14% of GDP, Russia’s public balance sheet remains superior to the BBB rating median of 42% of GDP.

The government is also now tapping its $85.7 billion Reserve Fund & $90.7 billion National Wellbeing fund, which were built on windfall oil revenues, to pay for an “anti-crisis” program that is worth about 2.5 trillion rubles ($79 billion).

Personally, I am positive on Russia long term & feel that this ETF offers value for a long term portfolio, year to date, it has returned 75.4% & I reckon it has further to go. Lately it has been trading in a choppy pattern & has suffered a significant retrace, but with S&P confirming it’s rating, I’ll be looking closely at the price of crude & natural gas over the next month or so, any gain there & I’ll be adding with an expectation of an additional 25% gain this year.

Reblog this post [with Zemanta] is now alive & kicking


It’s taken a while & it’s been an interesting experience, but am pleased to say that we released into public beta. For me personally, there have been a few challenges, “assisted” along the way by re-locating with my family from Switzerland to Slovakia.

The team at Connection Services who have designed & support the MSV platform have been excellent, especially when responding to an ever changing set of requirements. MyStockVoice started as this WordPress blog, where I could muse on my views on Emerging Markets & BRIC economies. A conversation with a friend who works in the City (London) encouraged me to look at doing something a little more. The original format, was a forum, then a newswire service & now it’s a fully fledged blog publication platform. So you can imagine how happy my colleagues at CSL were, when I tripped back every few months & said “right, this is what we are doing now”

Our aim at MSV is to provide an ever widening audience with value insights into what is rapidly becoming a major topic for hedge funds, investment managers & retail investors alike : BRIC & Emerging Markets. International stocks traded on US exchanges are becoming ever more popular, especially via Depositary Receipts (ADR,ADS,ADN) , for the more cautious or long minded, a number of ETF (Exchange Traded Funds) have sprung up to service the appetite to take part in these growing economies.

Covering all the major regions, MSV provides focussed channels into a variety of sectors & also specific categories for Macro Econmics, ADR & ETF investing. We are pleased to be working with some well established names from the investment community, along with faculties such as Knowledge at Wharton, the Economics Faculty at Beijing University, Skolkovo Business School in Moscow & Cranfiedl University in the UK.

Our strapline is “your community … your voice”  & to reflect this, we will be bringing our readers plenty of new unique content. Much of my time in the last two to three months has been spent contacting individual bloggers & also online media services that are based in the regions covered. In this way, we can present a “blend of thought”, that will allow our subscribers to formulate informed opinions on their own particular areas of interest.

So, enough jawing from me, but to close, Alex, Chris & myself would like to thank the team at CS & all the people that have had input into the project. We sincerely hope that you enjoy the MSV experience & are always open to new ideas, partnership opportunities & most of all feedback.

Many thanks


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Emerging Idol: Auditions for BRIC Without the “R”

american_idol-judges Today some humour & a guest post from Josh Brown from Reformed Broker …. thanks to Josh for letting us post, you can follow him on Twitter

It may be time to hold auditions to find a replacement for Russia in the BRICcountries.

The other day, the New York Times dropped this delightful little nugget on those believing that Russia is a suitable place to invest:

Russia’s Kemerovo region has notified ArcelorMittal that it will seize two of the world’s largest steel maker’s mines if production levels do not increase, the Siberian region’s government said in a statement.  “If your team is not able to stabilize production at these facilities, then we propose that you hand them over without compensation.”

Nice.  The whole BRIC (Brazil, Russia, India, China) theme may be in need of a makeover as it turns out that the former Soviet Republic is still very much up to it’s old KGB-era strong man routine.

The question becomes, what country could replace Russia that’s got the growth and demographic bona fides but a more conducive business climate for investment?

Let’s hold some auditions, American Idol-style, and see how other emerging economies stack up for membership:


Randy: I like what I’m seeing out of Turkey’s National-100 index, a 10.5% advance year-to-date, y’all.  I’d say yes.

Simon: This country has a population of 71 million, two thirds of which are aged 15 to 64…that’s an awful lot of productive workers.

Paula: Yeah but guys, Turkey’s economy is only supposed to show flat growth in 2010.  I’m sorry Turkey, I think you’re great…just not for this competition.

South Africa

Paula: Here’s a perfect example of an exciting country, with a $280 billion economy and booming mineral exports.

Randy: Yes, but a lot of those exports are non-industrial diamonds and gold, not a lot of practical uses for what South Africa produces, man.

Simon: I have to be honest and say that that was one of the most dreadful auditions I’ve ever heard.  And for a supposedly emerging market, the Johannesburg Securities Exchange has barely recovered this year, up only 4% or so.  I’m sorry, South Africa, it’s a No.


Randy: Singapore looks like the Real Deal right about now, the Straits Times Index is already up 35% on the year and shows no signs of quitting.  GDP growth for next year is looking like 7 and change percent.

Paula: And didn’t Jimmy Rogers sell his Manhattan townhouse and relocate his whole family there?

Simon: I’m sorry, but I don’t think so.  Singapore is as tied to China as you get, they do about 90 billion a year worth of trade together and have longstanding agreements in place that basically make the two economies inseparable.  I’m going to have to pass on this, we already have enough Chinese representation in BRIC.


Randy: I gotta keep it real with this one, Dog.  Aren’t we talking about an economy that’s basically 100% tied to high oil prices?

Simon: I completely agree with Randy, minus some steel exports, that’s exactly like Russia, which we’re trying to replace in BRIC, the last thing we want to do is add it’s mirror image.

Paula: You guys have the Dubai story all wrong, they’ve been redeploying the oil wealth to stimulate other parts of the economy, like the gold-plated Rolls Royce sector, for example.


Randy: Australia?  I thought this competition was for emerging markets only, y’all.  I know GDP growth for next year is estimated at 6%, but how old are you, Australia?

Paula: You gotta give it up to them, they have a fully developed economy, yet they’re the key supply line to some of the growthiest economies in Asia.  Wait, isgrowthiest a real word?

Simon: For me, it’s a yes.  If we refer to Brazil as the Commodities Supermarketto Chinese growth, then Australia is the Commodities Convenience Store, chock full of metals and minerals, yet right down the street.  And Paula, you should read a book one day.


Paula:  Look, we all know that the entire economy of Peru is just $127 billion and that’s like 7% of the economy of Brazil.  But I think Peru is going to broaden out.  Just because it doesn’t have a huge population, doesn’t mean it can’t become a big investment theme.  I say Peru deserves a chance.

Randy: It may be small, but it’s growing!  I’m feelin’ the growth!  10% GDP!  Peru, you’re on fire, Dog.  For me it’s a Yes.

Simon: Not to mention a 75% return for the IGBVL stock market so far in 2009, Peru is the very definition of hot.  Congratulations Peru, you’re through to the next round.

Randy: You’re going to Hollywood, Dog!


Peru exits ballroom with yellow sheet of paper, vigorously hugs Ryan Seacrestand let’s out celebratory yelp.  Assorted family members wipe tears from eyes.  Cut to Coke commercial.

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Global Expansion of Emerging Multinationals: Post-Crisis Adjustment

SkolvokoThe SKOLKOVO Institute for Emerging Market Studies has released an analytical survey “Global Expansion of Emerging Multinationals: Post-Crisis Adjustment”. The survey reviews the activities of the active participants of this process – Russian and Chinese multinational companies (MNCs) – and analyses the impact of the economic slowdown on expansion, performance and role of these companies under the new conditions.

The last decade was characterized by impressive growth of outward foreign direct investments carried out by companies from emerging countries, including those of China and Russia, which has led to visible changes in global investment flows. Chinese and Russian companies were given ample opportunities for international expansion in the beginning of 2000s. The key role in this process belonged to the changes in policies of both countries and to the public support given by their governments to investment abroad. The main tendencies characterizing the entrance of Russian and Chinese companies to foreign markets are presented below.

Russian international expansion has been carried out mainly by private companies, whereas, in China, on the contrary, under the government’s auspices, the most large-scale activity has been shown by state-owned enterprises. Europe has become the main target region of investment for the Russian companies, whereas the Chinese companies have concentrated on Asia-Pacific. At the same time, USA market has been equally attractive both for Russia and China.

Growth of Russian and Chinese companies’ foreign investments started from roughly similar levels; however, the number of Chinese running projects has been growing considerably faster. 2008 became a record year for Chinese companies-investors. According to different estimates, in 2008, the Chinese multinationals spent abroad US$35 to US$46 billion on company mergers, whereas the Russian MNCs – around €12 billion.

The impact of the crisis on the expansion of Russian and Chinese companies differed depending not only on sector, but also on strategic model of expansion. Entrance of Russian extractive companies, such as Norilsk Nickel and Rusal, to foreign markets was carried out, primarily, to increase the scale of activity; these companies in particular have been the most severely affected by the crisis. At the same time, a number of large Russian mining and energy corporations (such as Lukoil, Gazprom and others) have been implementing a strategy combining entrance to new markets with vertical integration towards the clients. A tendency for creation of value-added products (and services) has to some extent reduced their dependability on volatile raw materials prices. Thus, as regards investment capability, they are in a better position, which is confirmed by the deals carried through the last half-year.

Most of the largest Chinese multinationals also belong to the resource sectors, such as oil and mining. However, unlike other Russian multinationals from extractive industries, they are mainly importers rather than exporters, and most of their outward investment is directed towards securing the access to strategic natural resources and, as a result, national safety. Apart from the extractive companies, government-controlled companies, which implement large infrastructural projects, also take an active part in international activity. Due to China’s solid financial standing and its aspiration to invest abroad, virtually all of these resource and infrastructure concerns are in a better position to withstand the crisis and actively continue to seek for attractive objects for investment all over the globe, all the more so as the prices have decreased.

Market seeking expansion into emerging countries is typical for the leading Russian companies working on consumer markets, such as telecommunications, retail, food products and entertainment; this process has somewhat slowed down due to hindered access to financial resources, but certainly has not stopped.  Chinese manufacturing companies, which have been using their advantages in cost price for conquering the developed markets for several years now, currently are starting to pay more attention to the emerging markets.

A distinct group of investors is comprised of Russian and Chinese manufacturing companies, which hold on to the “product-line import” strategy. It involves purchasing relatively smaller but technologically more advanced manufacturers in developed countries and localizing the production of their main lines in Russia and China. Such projects were actively carried on in 2008, however, presently, in conditions of the weakened market, they seem much less profitable and are curtailed on many instances.

It is apparent, that owing to international investing, both Chinese and Russian companies acquire knowledge and new skills, expand their managerial capabilities, create global brands and enhance their competitive advantages on the global market. The overwhelming majority of both Chinese and Russian companies, that had led the foreign expansion in the previous decade, were able to preserve their organizational integrity and position on the key markets under the conditions of the global crisis. Moreover, currently there is an opportunity of acquiring potentially interesting foreign assets with price considerably lower than before. But whether the Russian and the Chinese companies would be able to continue their active investing and to take an advantage of the emerged opportunities depends on their ability to solve their primary domestic issues exacerbated by the current economic situation.

Professor Sam Park, President of SIEMS:

“The time has passed that emerging economies offer nothing but cheap input materials. The world has seen a fast surge of emerging multinationals from Russia, China, India, and other newly developing economies that are reshaping the global competitive dynamics. It was the Japanese multinationals in the 1970s and other Asian multinationals in the 1980s that changed the global market structure. The 21st century is now filled with new breeds of emerging multinationals mostly from BRIC countries. SKOLKOVO research examines this new, but critical, phenomenon in global competitive structure. Following the ranking survey of Russian multinationals over the last two years, the current report presents a comparative overview of these multinationals from China and Russia, along with an in-depth analysis of their strategic motivations. It further examines whether there have been noticeable changes in their global expansion due to the current financial crisis. There will be a follow-up report later that examines the challenges these multinationals often run into in their global operations, which should also be able to provide valuable insights on how to address them.”

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Russia : Mobile Telesystems – the long case

mobile-telesystems1Although in Q4 2008, Mobile Telesystems (MTS) suffered a disastrous $794.8 million foreign exchange loss to reflect  book value of the company’s foreign-denominated debt due to the weak ruble, there are plenty of signs Russia’s largest mobile operator is worth investing in now.  With revenue growing 4.0% to $2.42 billion from $2.33 billion a year ago, which is healthy in the current economic climate. Taking into account that the rouble declined by 16% against the dollar in the last three months of 2008, this is a signal the Mobile Telesystems is a very robust play indeed.

MTS operates GSM based mobile services across six countries within the CIS (Commonwealth of Independent States); Russia, Ukraine, Uzbekistan, Armenia, Turkmenistan & Belarus. It also has interests in foreign mobile operations in Daghestan & India, of which more later. Within Russia, it has the highest number of post paid customers, as it looks to serve the higher end user.

In mid-April the company released subscriber figures for the 12 months ending Q1 2009 & they show some impressive growth in all markets served : Russia-8.7%, Ukraine-8.5%, Uzbekistan-67.9%, Turkmenistan-141.4%, Armenia-44.8% & Belarus-11.9%. This brings the total subscriber number for MTS up to just short of 93 million end users of which 65 million are in Russia. In comparison, the next largest operator Beeline (Vimpelcom) has 49 million subscribers, out of a total addressable base of 190 million .

With a current market cap of $13.1Bn & sale of more than $10.2Bn  in the last year, MTS looks set to be able to service its $2.9 billion in debt. With net income of $1.9Bn, MTS would not seem to be overly burdened with debt.

Looking at MTS strategy going forward, it is plain that its is working on two distinct areas; cost reduction & ARPU growth through the introduction of VAS (Value Added Services). A good example of both can be seen in the partnership with Vodafone last year, which should bring some interesting synergies; CAPEx optimizations on the introduction of the Vodafone Live! platform, advice on network deployment, retail network insight to develop distribution & the introduction of CRM services based on Vodafone Globals platform will hopefully enhance subscriber loyalty & have a positive impact on churn.

Meanwhile, MTS is also introducing a number of new 3G based services, looking to capitalise in the low internet penetration in Russia. Chief Commercial Officer Mikhail Gerchuk said the company would double the number of large Russian cities in which it has third-generation mobile networks to 50 by the end of the year, and is looking for opportunities to enter the fixed-line market. MTS hopes to use its dominant position in post-paid to attract users to a slate of new services & has recently launched a new mobile internet platform, Omlet,  to provide entertainment services to content hungry young Russians.

“We want to become what iTunes is for America,” Gerchuk told Reuters in an interview, referring to Apple’s online music store, from which more than 6 billion songs have been bought and downloaded since it launched in 2001.

Gerchuk said the relatively low presence in Russia of global brands such as Apple, Google or Amazon would help MTS. With less than 27% of Russians currently enjoying internet access & less than 4M broadband users, MTS has a good case of sucking up new users with all you can eat data plans via a mobile broadband USB offering. The company is also looking at the potential of entering the fixed line market, MTS plans to invest $1.5 billion in capital expenditures this year, including $450 million to develop infrastructure.

“We have the opportunity to give many people the chance to access the Internet for the first time,” Gerchuk said. “Acquisition is faster than building for fixed networks, but it has to be profitable”

As previously commented, MTS is actively looking for further overseas expansion, further expansion into ex-Soviet CIS countries is obvious & the company has a track record of being able to manage these sorts of deals & partnerships. Of more interest is it’s position further afield, namely India. MTS franchised it’s brand to Shyam TeleServices last year in what is becoming one of the fastest growing global mobile markets.

Shyam which currently has operations in 3 states in India, currently serves 5 million users & has ambitions to double that in the next three months. Shyam has also stated that it will be in a position to serve all 22 Indian states by the third quarter of 2010. MTS’s parent company, Sistema, owns a 74% stake in Shyam TeleServices. Gerchuk said MBT would have to monitor the situation in India before deciding whether to enter the market in earnest, and would probably do through acquisition if at all.

“India is a very competitive market, with eight operators,” he said. “There’s also the possibility of entering the market by acquisition — probably the better option in a crowded market.”

Taking all of the above factors into consideration, it points to strong growth & some very interesting potential both through new services at home & new network operations abroad. For me this is a good long term investment & I initiated a buy last week. Looking at the chart shows that MTS has returned 62% steady growth, which is pretty formidable. I’m just kicking myself that I didn’t move sooner. Mobile Telesystems (NYSE: MBT) closed on Friday at $35.15. So far the stock has hit a 52-week low of $18.36 and 52-week high of $89.24