Since the currency crisis abated in February 2009, our Russia research has focused on two broad areas:
1. The risk that economic recovery, driven by the initial reversal of oil price falls and capital flight, will be derailed, or at least delayed, by the severity of the recession. We evaluate this risk both from a broad perspective, including regime stability, and in the light of urgent and specific challenges such as the recapitalisation of the banks.
2. An important outcome of the previous crash – in 1998 – was the positive transformation of fiscal policy leading to the creation of the Stabilisation Fund. The existence of these government savings is the principal risk-mitigating factor in the present crisis, which we now see driving a similar transformation in monetary and financial sector policies. Our analysis of crisis impacts extends both to other policies (with upcoming notes on regulation of the energy and retail sectors) and, looking beyond public policy responses, to labour and consumer market trends.
The first of these areas is central for market strategy as asset prices bounce choppily. The second area bears on longer-term portfolio decisions – both on the weighting of Russia relative to peer group markets and, specifically as regards equities, on sector weightings within Russia.
Continuing with this equity investing perspective, we examine topical corporate governance issues and long-term policy drivers. Here our research is moving on from crisis-related reassessments of the Medvedev administration’s core rule-of-law and anti-corruption agenda to competition policy. Turning from regulatory to government-spending drivers, our research will “follow the [public] money” into the banking sector and, in the light of fiscal stimulus concentrated on major pension hikes, the various consumer-related sectors.
Ruble to trend weaker through 2010