By Andrei Skvarsky.
At a time when few analysts are upbeat about the current state of Russia’s economy, Sberbank has released a research piece arguing that the country has a set of major advantages over other emerging markets.
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“Russia enjoys a current account surplus, is close to fiscal breakeven, and has a flexible currency, limited debt levels, and significant foreign reserves,” Kingsmill Bond, chief strategist at Sberbank-CIB, the investment arm of Russia’s biggest lender, and his colleagues Andrey Kuznetsov and Iskander Abdullaev say in their study.
“We believe the Russian market is more attractive … than markets with twin deficits like Turkey, markets which have early stage commodity dependency like Brazil, or markets with major debt deleveraging issues,” they say.
Moreover, oil, which along with gas is the main vehicle of Russia’s economy, has become “the best foundation among commodities”, the analysts say.
“Although all major commodities are vulnerable to the slowdown in China and the end of the supercycle, oil is likely to continue to prove the most resilient,” they say. Moreover, “Russia is one of the very few liquid markets that would benefit from the higher oil prices that would follow continued disorder in the Middle East”.
Furthermore, “early stage capitalism creates opportunity,” Bond, Kuznetsov and Abdullaev say. “Limited amounts of capital and competition continue to mean greater growth prospects and structurally higher ROEs [returns on equity] in Russia’s domestic sectors, despite relatively weak GDP growth.”
The analysts also credit Russia with having “improved the mechanics of its financial markets” and point out that the country’s one-year-old membership of the World Trade Organization is a help.
A few days earlier, a senior Renaissance Capital researcher came up with a less optimistic assessment.
The Central Bank had sent out “worrying signals”, Ivan Tchakarov, RenCap’s chief economist for Russia and the CIS, said in a report.
Tchakarov cited a Central Bank statement as suggesting that the pace of economic activity remained slow, with industrial production still subdued, investment spending continuing to decline, and unemployment rising.
Inflation was 6.5% year-on-year as of August 5, with an official target of between 5% and 6%, the Central Bank said, though it argued that inflation was tending down and likely to fall within the target later this year.
The Central Bank “mentioned still relatively robust consumer spending as the only bright signal in the Russian economy,” Tchakarov said.
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