Citi downgraded its assessment of the risk premium in Russian assets, and with it the risk-free rate from 6.5 to 5.5%, wrote in his review “Russian oil and gas analysts of investment houses Ronald Paul Smith and Alexander Bespalov. Previously, they believed that the political risk will not allow the prices for Russian assets remain at a high level, and the yield is low. However, the yield on sovereign dollar Eurobonds of Russia remains stubbornly lower than forecast, analysts write. Practically, this means that political risk in the valuation of Russian assets declined.
Risk premium decreased due to lower political risk, agrees managing Director for investments “TKB BNP Paribas investment partners” Vladimir Chuprov. “But it’s like the discovery of America, did not happen yesterday. In fact, for at least the last 9 months of political tension subsided,” he says, adding that “the political risk has decreased and this has led to a reassessment of Russian assets”. Now the long yield of sovereign Eurobonds is at 5.3 5.25 percent, said the head of the Department of trade in debt tools “ATON” Konstantin Glazov.
In time of geopolitical instability, the yield of sovereign issue of Eurobonds maturing in 2042 (Russia 42) above all rose in December 2014 to 7.8%. For several months, the yield dropped below 6%, but at the end of August again soared to 6.9%. In January 2016, the yield of the Eurobonds was at the level of 6.6% per annum and from that moment began a gradual decline. Last month the yield on the Russia 42 does not rise above 5.4 per cent.
Deterioration of the geopolitical situation does not occur, says chief economist for Russia and CIS “Renaissance Capital” Oleg Kuzmin. “Discussion of tougher sanctions against Russia ceased. Investors now expect sanctions if they are not removed, then certainly will be weakened,” he says. The second factor is an adequate economic policy in response to sanctions and a sharp decline in oil prices. “No there are proposals to give all of the money, or sharply lower interest rates, or to monitor the movement of capital”, lists Kuzmin. The third factor reducing political risk, according to the economist, is a stable domestic situation: for example, low levels of unemployment.
“Time heals all wounds: in the last two years foreign investors have become accustomed to the new geopolitical realities and Russia are used to living under sanctions” — the Director of Department of active operations “Veles the Capital” Evgenie Shilenkov. Russian assets give investors make money, therefore they can’t be ignored, says Silenkov. “Those managers who chose not to take on Russian risk in 2015, could see the yield for the year is lower than expected. Therefore, in early 2016, they could pay attention to Russia,” he says.
A certain lack of ideas, the stabilization of oil prices and the absence of negative political news lead to the fact that foreign investors are again paying attention to Russia, says managing Director, BCS Broker Oleg Chikhladze. “Russian Eurobonds against the background of low interest rates in the West look quite attractive,” he adds.
Will increase the interest of foreign investors to Russian assets in the future will depend on how the change will be political risks, says Chuprov. It is important how you will run the Minsk agreement, and also what will be the policy of the new U.S. President, what will be the vector of sanctions and other controversial issues, he enumerates.
Furthermore, political risks will be reduced through the work of the Ministry of Finance and the Central Bank, which are liberal, market-based methods cope with complex external environment, I’m sure Chuprov: “They made a lot of “points” in the eyes of Western investors and apparently can still make money, when will achieve lower inflation. It is also, oddly enough, but it reduces political risks.
“The worst assessment of Russia in the eyes of foreign investors we have seen. Then the situation will return to normal: the risk premium will decline, and the demand of investors to Russian assets will increase,” — says Kuzmin.