Iskra Forum

29 January 2007

Russia – domestic money is coming back.
Capital flight has stopped, stabilized and now reversed as Russians reinvest their money where the opportunities are. In the 1990s capital flight was regularly running at over $20 billion per annum. The situation stabilized only in 2006, and in 2007 we believe that there was capital repatriation of over $30bn.

28 January 2007

Russia: agriculture powerhouse of the future.
Russia has 7% of the world's arable land, but only produces 3% of its cereal crops. Moreover, land at $500 per hectare costs a tenth of the price in Europe. As reforms and the profit motive start to take effect in the agricultural sector, we believe that there are very exciting opportunities.

25 January 2007

Russia - the largest consumer base in Europe in volume terms.
As wealth spreads across the country, we calculate that Russia already has over 85 million consumers of low ticket branded goods. As a result in 2008 it will be the largest market in Europe for a series of products, from fruit juice to beer, and even for mid ticket items like washing machines.

24 January 2007

Russia - immune to the currency risk that may plague high current account deficit Eastern Europe this year.
Russia has the cheapest currency in the G8, trading at 68% of fair value in PPP terms according to data from the IMF. Moreover, it runs a large current account surplus and has one of the world's largest amounts of foreign reserves at nearly $500bn. We expect continued currency appreciation to encourage excellent performance from domestic plays.

23 January 2007

FDI into Russia - only just starting. Total FDI into Russia since reforms began has been $135bn, with $40bn of that arriving in 2007. This equates to FDI of under $1,000 per capita, compared with levels three times or more that level in Central Europe. We believe there are many more foreign investors yet to enter this market.

22 January 2007

The Russian market is a key performance generator for global funds. In 2007 five sectors in the Russian market more than doubled - mobile, steel, automotive, fertilizers and coal. Whilst the RTS was up only 19%, the market ex oil was up by 29%. Trading at 12.4 times 2008 earnings and 10.6 times 2009 earnings, the market is likely to entice further global capital.

21 January 2007

Russia - a haven of growth. Russia is growing at more than three times the rate of the rest of the G8, with anticipated real GDP growth in 2008 of 6.5%. The next highest grower is the UK, where the growth forecasts are under threat, while in Russia we see more upside than downside risks. The period of Russian catch-up to the rest of Europe has not yet finished. In the 1980s, Russian GDP per capita ran at around half European levels, while in 2008 we expect it to reach 45%. The implication is that the Russian domestic growth story still has many years to run.

18 January 2007

Russia: a capitalist haven of low tax and an aspiring middle class.
A recent study by the Levada institute showed that 82% of Russians regard themselves as middle class. In contrast, some 95% of Americans see themselves as middle class, and some 70% of Europeans. Russian government expenditures constitute 33% of GDP, significantly lower than the EU average, while the personal income tax rate is a flat 13%, one quarter of the high end of the range in some EU markets.

17 January 2007

The Russian regions are the next European convergence story.
Levels of GDP per capita in Moscow at nearly $30,000 are the same as in many parts of Europe already. GDP per capita in the country as a whole at $10,500 per capita in 2008 is only slightly behind Eastern Europe, but growing at a faster rate than in Moscow. Therefore, we believe that Russia should be seen as the next and the largest European convergence story.

16 January 2007

Russia - relatively immune to the credit crunch.
Debt levels in Russia are dramatically lower than in developed markets, with a total debt/ GDP ratio of 34%. The average debt per capita of a Russian citizen is $800 (15% of annual disposable income), compared to $40,000 for an American (130% of disposable income). Russian government gross debt at 3% of GDP is less than a twentieth of that of the G8 nations, led by Japan on nearly 200% and Italy on over 100%.

15 January 2008

Russia: on track to become Europe's largest economy.
By end 2008 Russia will be the third largest economy in Europe, overtaking France and reaching a GDP in PPP terms of over $2 trln. Two years thereafter, we calculate that the country will overtake the UK and then start to challenge Germany for preeminence in Europe.

14 January 2008

The Russian market: already among the global elite.
At $1.5 trln, Russian stocks have the second largest capitalization in emerging markets, trailing only China, and rank among the top 10 in the world. Russian stocks' ADT of $5 bln - more than the whole of Latin America, Africa, and Eastern Europe - also makes them some of the most active in the world.