Russia has been front-and-center of the news this summer. Yet Western sanctions over Crimea, fallout from the investigation into meddling in the U.S. presidential election and last month’s bailout of the nation’s largest privately held bank have failed to thwart Russia’s emergence from stagflation.
Assessing the economic and market impact of these events was the goal of a recent trip to Moscow. They’re tied to the central question of whether Russia’s economic expansion will accelerate sufficiently and possibly garner investment grade status from the ratings agencies.
Preliminary conclusions:
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Sanctions: The eerily empty U.S. embassy in Moscow may stand as one of the clearest examples of the political rift with Washington. It’s the direct result of the tit-for-tat expulsions of diplomats sparked by American accusations of Russian interference in the U.S. presidential election. And it’s a sign that Russo-American rapprochement is an impossibility in the near term.
Nonetheless, confrontation with the West is hardly the center of debate. Instead, Moscow, always rich in rumor, is abuzz over who will run as prime minister, alongside President Vladimir Putin, in elections next March. While Putin’s re-election seems almost inevitable, many view the choice of prime minister as a harbinger of what may come over the following six years. For now, the electoral outcome is not affecting our current positional bias in favor of Russian local assets and selected credits.
- Banking: Russia also faces challenges from within, particularly in its banking sector. Last month, the central bank stepped in to rescue Bank Otkritie after its off-balance-sheet shenanigans became known. Since our visit, another large financial entity, B&N Bank, faced a similar fate. This has raised questions about vulnerabilities among some other private sector banks.
