The WSJ called Nabiullina “voskresinnia” of the Russian economy


Two years after the collapse of oil prices and the introduction of Western countries ‘ economic sanctions in response to events in Ukraine, Russia restores attractiveness to investors, writes The Wall Street Journal. According to the interviewed investors, the main credit for this belongs to the head of the Central Bank Elvira Nabiullina.

Russia’s MICEX index in 2016 has grown by 25%, which puts Russia in sixth place among 23 emerging economies tracked by the MSCI. The ruble strengthened against the dollar by 13%, according to J. P. Morgan Chase & Co, makes it the third stability among emerging economies.

Investors interviewed by the publication, support the decisions of the Central Bank about cancellation of currency corridor and regular foreign exchange interventions in November 2014, as well as a sharp increase in the key rate later. The actions of the regulator, as the newspaper notes, was painful for the Russian economy, which experienced a severe recession, the weakening of the ruble against the dollar and reducing the purchasing power of the population and business activity. However, over time they helped to restore the faith of foreign investors in the economy, “which still lies in the shadow of the 1998 default,” writes the WSJ.

“Right steps taken by the Russian Central Bank, have restored confidence in the ruble and macroeconomic policy of the regulator,” — said in a conversation with WSJ portfolio Manager Fund Wasatch Emerging Markets Small Cap Andrey Kutuzov. The Fund, managing assets of $700 million at the end of 2014 left the Russian market, but have recently invested a large sum in Russian retailer Lenta.

Capital Group, which manages the bonds of countries with developing economy about $9 billion, takes into account the favourable economic environment and continues to invest in Russian bonds, said portfolio Manager Robert Neithart.

According to EPFR (the organization monitors the inflows and outflows of funds into investment funds and their distribution), in 2016 the international investors put $1.3 billion into funds investing in Russian assets. According to the Central Bank, as of June 1 the share of foreign investors among holders of government bonds rose to the highest level since the second half of 2012 of 24.5%.

The recovery of Russian economy partly contributed to the weakening of expectations regarding the probability of a rate hike, the fed, the WSJ notes. According to the June forecast by Bloomberg, the fed will raise rates no earlier than 2018. The fed’s rate hike means for emerging markets, weakening of national currencies against the dollar, reduced purchasing power and increased cost of servicing dollar debt.

Skepticism remains

Despite the enthusiasm of investors, many analysts are concerned that the duration of the investment attractiveness of emerging markets is uncertain. Skeptics argue that the growth of financial markets ahead of real economic performance and political situation, and many countries, including Russia, have not yet completed structural reforms, including liberalization of labour markets and the modernization of enterprises with state participation, notes the WSJ. “If you do not implement these reforms, there will be growth in the long term. To ensure that a single monetary policy will not work”, — said the publication of an analyst at the Eurasia Group Zahar, Witlin.

On the need for institutional reforms to ensure the inflow of investments in Russia and insists the IMF. In July, the IMF predicted the decline of the Russian economy in 2016 by 1.2% and in 2017- a growth of only 1%.

Analysts are reminded of the dependence of the Russian economy from the prices for raw materials, and expresses concern that her condition deteriorates in the case of falling oil prices and increased expectations of fed rate hikes. On Monday the price of Brent crude declined by 3% and the ruble weakened against the dollar by 1.4%. Investors are also concerned about the risks that may incur “unpredictable geopolitical ambitions of the Russian leadership, notes The Wall Street Jourmal.

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