After negotiations lasting nearly two decades, Russia will join the World Trade Organization, most likely this month, and although analysts do not see immediate major benefits from the move, it could be a catalyst for foreign investment getting back in.
Russia’s very strong fundamentals – economic growth of 4.3 percent last year, with a current account surplus and sovereign debt of around 10 percent of GDP – make it a very good investment opportunity, according to some analysts.
“Yes, Russia is cheap, Russia is very cheap. There are reforms that we think are plausible, very likely out of Russia,” Renaissance Capital’s Charles Robertson said.
Russian stocks fell sharply in May, after a Kremlin decree following the return to the presidency of Vladimir Putin designated some energy firms as strategic companies in which majority stakes must stay in state hands, effectively canceling privatization plans for the energy sector.
But stocks have been cautiously on the rise lately, as investors took heart from pledges that reforms will go ahead.
Robertson pointed out that Putin targeted an improvement in the ease of doing business in Russia – as measured by the World Bank - that would see the country leap to the 20th place by 2018 from 120 currently.
“There is credit growth, we’ve got stable enough politics,” he said. According to Robertson, the second-strongest stock performer in the last 10 years in the world was Russia’s Sberbank, after America’s Apple.
“In the next 10 years we think it’s going to be Sberbank outperforming Apple,” he said.
But for the shorter term, other analysts warn that Russia’s outlook is not unclouded.
“For a start, rising inflation will eat into household’s real incomes,” according to Liza Ermolenko, emerging markets economist at Capital Economics, who estimates that inflation my hit 5.7 percent by the end of this month from an average of under 4 percent in the first half of the year and could even rise to 6.5 percent by the end of the year.
“What’s more, there will be little room for the authorities to increase spending in order to support growth,” Ermolenko added, explaining that with oil prices below the $115 per barrel needed to balance Russia’s budget there is little room to boost spending.