generalspeaking

Shelving Investment In Russia

"Putin will have to either drop his support for the separatists or face tough sanctions. If new sanctions are imposed, they'll probably hit the biggest Russian companies."
Andrey Vashevnik, chief investment officer, R&B Investment Fund Ltd., Moscow

In the wake of the July 17 strike against the Malaysia Air passenger jet in eastern Ukraine, held widely to be the responsibility of Moscow and the ethnic-Russian rebels it backs, U.S. exchange-traded funds that have been investing in Russia experienced a large net outflow for the year of $28.54 million for five days ending July 18.

Where investment inflow is steady elsewhere in the world, Russia experienced the pain of leading all other emerging market countries in outflows. This is not necessarily new; Russia has traditionaly had a poor reputation as a reputable, reliable investment venue. Foreign investors have in the past pulled up stakes, made all the more urgent whenever Vladimir Putin embarks on one of his antagonistic forays in the international community.

This time the situation is somewhat extenuating, more bitterly harmful, earning Mr. Putin and Moscow condemnation and the prospect of increased sanctions. "The economic and business elite is just in horror", commented Igor Bunin, head of the Centre for Political Technology in Moscow. Despite which the oligarchy look little inclined to reproach the Russian leader for the harm he is doing to their economy.

Breaking solidarity with the Kremlin and Vladimir Putin has proven to be a certain route to imposed purgatory. Business leaders have experienced before what it feels like to be "brought to their knees", observed Mr. Bunin. BP PLC could write a door-stopper about its decade of disagreements with the Russian government when its Russian offices were raided, corruption charges levied against its executives and it experienced the seizure of its corporate assets.

Its experience is not unique.

And then there is Mikhail Khodorkovsky, the young, fabulously wealthy oil magnate who thought he could contest Vladimir Putin as a political rival and lived to tell a tale of lengthy imprisonment on charges that the village idiot identified as trumped up come-uppance. Even though the Russian stock market represents the cheapest in the world in equity valuations, international money has been sitting on their investments rather than gaming them in Russia.

Russia, according to a poll of foreign investors by Bloomberg in 2014, is considered the absolute worst of the world's largest economies to place investment in. Almost 56% of respondents claimed they had no intention of investing. Some 75% claimed pessimism over Mr. Putin's policies and how in the end, they will continue to affect Russia's climate for investment. Badly, very badly.

Monday's MICEX, Russia's mains stock index, saw a loss of 2.56% and almost eight percent since last week, reflecting the fighting escalation in Ukraine between government forces and ethnic-Russian separatists. Washington is leading a move to impose stricter sanctions against large Russian domestic companies.

Penalties imposed by the U.S. on Russia's state-run companies and on the political and economic elite, including Russia's fabled billionaire oligarchs threaten further diminishing returns for Russia's economic future with the irascible, autocratic, aggressive Mr. Putin at the helm, even as western sanctions grip a little tighter in their overbite.

Labels: Aggression, Economy, EU, Russia, Sanctions, Ukraine, United States

posted by Pieface @ Wednesday, July 23, 2014