Sanctions are no obstacle to investing in Russia

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3/9/2015

Sanctions are no obstacle to investing in Russia

Translated from Russian by J.Hawk

The net inflow of money into funds investing in Russian
shares continued its six-week streak, totaling $40.7 million for the week of 26
February – 4 March, in comparison with $80.1 million during the preceding week,
according to the Emerging Portfolio Fund Research (EPFR).

Funds investing in shares in developing markets continued to
grow during the three previous weeks, though at a diminishing pace with every
week, according to Sberbank Investment Research.

The volume of inflows into these funds has not changed during
the week of March 4, and reached $6.5 million according to EPFR Global. The MSCI
EM index fell by 1.2% during the same week. Considering the low basis for
comparison, the inflow of funds on an annualized basis increased once again to
the level of .5% of assets, or $3.1 billion).

The leader among BRICST countries was India, whose inflows totaled
.55% ($678.1 million) over the course of the week (the 12 month total was 7.4%,
or $7.4 billion). China once again had comparatively weak results—an outflow of
.12% ($341.1 million) in the course of the week, and 3.8% ($11.1 billion) over
twelve months.

Investors are continuing to withdraw assets from Latin
America–.75% ($216.3 million) during the week, according to Vesti Ekonomika.

Russia took the second place among the BRICST. Its total
capital influx over the course of the year reached 1.1% ($525.2 million).

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Therefore Russia is continuing to outpace developing
markets, concludes Sberbank Investment Research.

The first fiddle is still played by funds oriented toward
Russia (inflow of .11%, $34.3 million). Passive funds attracted .47% ($54.2
million), active funds lost .02% of assets ($4.6 million). During the week
ending on March 4, RTS index increased by .1%, and Brent crude price rose by
3.2%.

J.Hawk’s Comment: This is unadulterated good news,
especially in the rather gloomy international economic environment. To put it
in plain English, Russia is considered to have an attractive investment
climate, no mean feat after a decade of sanctions, credit rating downgrades,
threats of more sanctions, even threats of military action and provocative NATO
exercises on its border. All of these measures were not so much intended to
hurt Russia’s economy directly as to create the impression Russia is
surrounded, isolated, starved of capital, with its economy “in tatters”, to
quote Barack Obama.

Who gets the credit for all this? Two sets of people:

The first is Russia’s economic team, which includes the
Finance Minister Siluanov and Russian Central Bank Chair Nabiullina, both of
whom are dependable, competent, and financially conservative. They understand
that Russia still has not fully established itself as a sound post-Soviet
economy, therefore they avoid taking any measures to put that reputation into
doubt.

The second is Russia’s political team, with President Putin
at the helm. They have managed to pursue an active foreign policy aimed at
deflecting Western expansionism aimed at Ukraine and Russia, while at the same
time not scaring away Western investors. The numbers cited above indicate that,
amazingly, capital continued to flow into Russia even as fighting was raging on
the Donbass and Ukraine’s economy was cratering. 

It is arguably on the financial
front that Ukraine suffered its greatest defeat, since the renewal of fighting
by Ukraine was predicated on the assumption that the West would hurry to shower
Ukraine with billions, while Russia would experience capital flight which would
ultimately force its leadership to abandon Novorossia and maybe even rethink
the annexation of Crimea. None of these expectations came true, due to the
credibility, trustworthiness, and steadfastness of its leaders, both political and
economic. International investors know when they see a winner.

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