LONDON/MOSCOW: It has been a tough couple of years for Vladimir Miroshnikov, head of business development at Rolf, one of Russia’s biggest car dealerships. But like many foreign investors, he is banking on an economic turnaround in 2017.
Russian car sales, once growing around 50 percent a year, dropped off a cliff in 2015 after the rouble’s 2014 collapse and fell a further 10 percent in 2016.
Miroshnikov remains cautious, saying the next few months will be tough and seeing the possibility of “a recovery only in the second half of 2017.” However, he told Reuters he expects sales will at least stop falling over the year as a whole.
Foreign investors are more enthusiastic in hoping for a revival in economic growth and consumer demand after two years of recession. Even after roughly 50 percent gains on Russian stocks and rouble bonds in 2016, analysts and fund managers interviewed for this article remain almost unanimously bullish on the country.
Russia figures among the top 2017 trades for Deutsche Bank, Goldman Sachs, UBS, JPMorgan, Rabobank and Bank of America Merrill Lynch among others, with Goldman predicting it “to move from a recovery to a growth phase.”
On the face of it, the stars do seem aligned for Russia.
Data showed manufacturing expanding in December at its fastest pace since March 2011, a signal that the economy is starting to grow again.
Prices for oil, its lifeblood, will average $57 a barrel, according to analysts’ forecasts in Reuters polls, $10 higher than in 2016. And if the central bank brings inflation down to its 4 percent target, ordinary Russians should have more money to spend.
Two other factors have added impetus to the trade.
First, Republican Donald Trump won US elections on Nov. 8 with a promise to improve ties with Russia, holding out the possibility of easing sanctions imposed after Moscow’s 2014 annexation of Crimea from Ukraine.
And on Dec. 7, Glencore and Qatar teamed up to pay $11 billion for a stake in state oil firm Rosneft, confirming Russia’s allure for international investors.
Some are confident that the sanctions, tightened over Russia’s role in a separatist rebellion in eastern Ukraine, will go after the new US administration takes over.
However, hopes related to sanctions got a setback this week as Washington imposed fresh curbs on Russian intelligence agencies over the hacking of political groups during the US election campaign.
But many reckon Trump will roll back the measures once he takes office in January. President Vladimir Putin said on Friday that Moscow would not expel anyone in retaliation, adding that he would wait for the actions of Trump before deciding on any further steps in relations with the United States.
Take the politics out, and Russia looks attractive relative to many big emerging market (EM) economies. Unlike countries such as Mexico or Turkey, it has a balance of payments surplus, making it less vulnerable to the rise in global borrowing costs.
Russia is favored by bond investors too because falling inflation may bring 150-200 basis points in official interest rate cuts next year. That will keep inflation-adjusted bond yields at among the highest in the world.
“There is a lot more acceptance now that Russia is in a good place,” said Yerlan Syzdykov, head of emerging debt at Pioneer Investments.
Syzdykov holds more Russian bonds than their weight in emerging market indexes, but Pioneer is also bullish on Moscow-listed stocks, he said, adding that the fund was looking to “put more money into cyclical recovery stories.”
Corporate results have been encouraging. Earnings-per-share, a key profitability indicator, recently surpassed their 10-year average for the first time since 2012.
Russian car sales, once growing around 50 percent a year, dropped off a cliff in 2015 after the rouble’s 2014 collapse and fell a further 10 percent in 2016.
Miroshnikov remains cautious, saying the next few months will be tough and seeing the possibility of “a recovery only in the second half of 2017.” However, he told Reuters he expects sales will at least stop falling over the year as a whole.
Foreign investors are more enthusiastic in hoping for a revival in economic growth and consumer demand after two years of recession. Even after roughly 50 percent gains on Russian stocks and rouble bonds in 2016, analysts and fund managers interviewed for this article remain almost unanimously bullish on the country.
Russia figures among the top 2017 trades for Deutsche Bank, Goldman Sachs, UBS, JPMorgan, Rabobank and Bank of America Merrill Lynch among others, with Goldman predicting it “to move from a recovery to a growth phase.”
On the face of it, the stars do seem aligned for Russia.
Data showed manufacturing expanding in December at its fastest pace since March 2011, a signal that the economy is starting to grow again.
Prices for oil, its lifeblood, will average $57 a barrel, according to analysts’ forecasts in Reuters polls, $10 higher than in 2016. And if the central bank brings inflation down to its 4 percent target, ordinary Russians should have more money to spend.
Two other factors have added impetus to the trade.
First, Republican Donald Trump won US elections on Nov. 8 with a promise to improve ties with Russia, holding out the possibility of easing sanctions imposed after Moscow’s 2014 annexation of Crimea from Ukraine.
And on Dec. 7, Glencore and Qatar teamed up to pay $11 billion for a stake in state oil firm Rosneft, confirming Russia’s allure for international investors.
Some are confident that the sanctions, tightened over Russia’s role in a separatist rebellion in eastern Ukraine, will go after the new US administration takes over.
However, hopes related to sanctions got a setback this week as Washington imposed fresh curbs on Russian intelligence agencies over the hacking of political groups during the US election campaign.
But many reckon Trump will roll back the measures once he takes office in January. President Vladimir Putin said on Friday that Moscow would not expel anyone in retaliation, adding that he would wait for the actions of Trump before deciding on any further steps in relations with the United States.
Take the politics out, and Russia looks attractive relative to many big emerging market (EM) economies. Unlike countries such as Mexico or Turkey, it has a balance of payments surplus, making it less vulnerable to the rise in global borrowing costs.
Russia is favored by bond investors too because falling inflation may bring 150-200 basis points in official interest rate cuts next year. That will keep inflation-adjusted bond yields at among the highest in the world.
“There is a lot more acceptance now that Russia is in a good place,” said Yerlan Syzdykov, head of emerging debt at Pioneer Investments.
Syzdykov holds more Russian bonds than their weight in emerging market indexes, but Pioneer is also bullish on Moscow-listed stocks, he said, adding that the fund was looking to “put more money into cyclical recovery stories.”
Corporate results have been encouraging. Earnings-per-share, a key profitability indicator, recently surpassed their 10-year average for the first time since 2012.
