A fascinating note has arrived in our inbox from Steven Holden of Copley Fund Research, which tracks the investments of 100 big global EM equity funds with about $285bn of assets under management.
Readers may remember a recent piece based on his monthly report in October, showing that big fund managers were predominantly underweight in China compared with the MSCI Emerging Markets index, and overweight in India. An analysis of data from his November report shows that, on average, managers are in line with the MSCI regarding Russia – but that, individually, they diverge greatly from the index, in ways that suggest contrasting views on the crisis in Ukraine and how to play it as an investor. Read more
One of the most powerful emerging markets fund managers in the US is accusing the west of acting “capriciously” by imposing sanctions on Russia.
Justin Leverenz, who controls the $42.3bn Oppenheimer Developing Markets fund, and who has put 7.2 per cent of his fund into Russian stocks, questioned the wisdom and the motives of a confrontation with the Kremlin over the Ukraine. Read more
Source: Thomson Reuters
The Russian rouble dived deeper to new lows on Friday, as the central bank’s decision on Wednesday to let the currency float failed spectacularly to put a floor under the exchange rate. It went briefly through Rbs48 to the dollar during the morning before recovering slightly, down from a low of Rbs45 to the dollar on Wednesday.
“People are in disbelief. The rouble is being smashed again,” said Timothy Ash of Standard Bank. “The central bank is nowhere.” Read more
By Relte Stephen Schutte, Markit
In spite of what you might expect to be a “perfect storm” scenario for Russian stocks, inflows of investment capital into Exchange Traded Funds (ETFs) – investment funds traded on stock markets much as a stock would trade – have remained strong.
Net inflows into the 23 Russian tracking ETFs have proved buoyant in the last three months in spite of continued sanctions by the US and Europe and Moscow’s destabilising actions in Ukraine. Such inflows take 2014 net inflows into Russian ETFs past the $1bn mark (see chart), an extraordinary performance given the negative newsflow surrounding Russia. Read more
By Timoty Ash of Standard Bank
Ukraine is a fast-moving target, making any appraisal something of a work in progress. But taking the country on a stand-alone basis, I see a number of positives:
First, parliamentary elections held last weekend produced a strong majority for reform and even the prospect of a constitutional majority. Pro-EU reform parties took 70 per cent plus of the votes and could have 275 seats in parliament, and even over 300 with independents and some of the more populist/nationalist elements. As with the presidential elections, Ukrainians voted firmly in favour of a pro-western reform agenda. Extreme nationalists performed poorly, as did supporters of the former Regions regime. Read more
By Vladimir Kolychev, VTB Capital
Russian President Vladimir Putin announced this month that Russia should aim to sell its oil and gas for roubles globally, because “the dollar monopoly in energy trade was damaging Russia’s economy”.
This was the clearest indication yet that Russia is serious about its plan to shift away from using the US dollar. Western sanctions against Russia have accelerated this process and encouraged Russia’s close economic alliance with China. Some may question this move but for Russia, a shift away from the dollar makes perfect sense. Read more
By Chris Weafer of Macro-Advisory
Since the start of this year the Russian rouble has collapsed by 20 per cent against a basket of dollars and euros, by far the worst performing of the major emerging market currencies except for the Argentine peso. But Argentina defaulted on debt obligations, while Russia has less than 11 per cent sovereign debt to GDP and is running a triple budget, trade and current account surplus. It is therefore tempting to link the rouble’s demise with the country’s actions in Ukraine and the resulting sanctions imposed by western countries. A prevalent theme in many western political commentaries is that the rouble slide, in tandem with the steep oil price fall, will lead to a collapse in the economy which, in turn, will undermine public support for President Vladimir Putin and force the Kremlin into a more accommodating geo-political stance. Both of those assumptions are very wide of the mark. The reasons for the decline in the rouble are more serious than just sanctions and, at the same time, the central bank’s response and the oil price slide offer cause for some optimism that some positives may yet emerge from this crisis. Read more
As the rouble continues its decline – hitting a new low against the dollar and euro this week – it is Russian consumers who will feel the sharpest pain, says Capital Economics, thanks to increasing inflation, which had already risen in September to its fastest pace in three years. Read more
By Taras Kuzio of the University of Alberta
Friday’s abduction on Estonian soil of Eston Kohver, an officer in Estonia’s Internal Security Service, by “green men” – Russian special forces in uniforms without identification – was the latest instance of a tactic first used during Russia’s annexation of the Crimea in March. The timing of this act of international piracy was no coincidence, coming a day after US President Barack Obama’s visit to the country, when he promised Nato would defend the three Baltic states. Read more
By Ben Aris of bne
The chances of a lasting ceasefire in the conflict in eastern Ukraine are looking better.
But the cessation of military hostilities will only mark the outbreak of a new fight: the gas war between Russia and Ukraine is about to restart and will probably come to a head in January, when Ukraine risks running out of gas. Read more
By Taras Kuzio of the University of Alberta
Following Russia’s invasion of Ukraine the tide on the battlefield has turned against Kiev, with its armed forces and volunteer National Guard on the retreat. Russia’s next move could be to push towards Mariupol to create a land corridor from Russia through the Donbas to occupied Crimea.
Whatever steps Vladimir Putin, Russia’s president, takes next it is beyond doubt that two of Europe’s biggest countries are at war. Read more
As European leaders threatened yet tougher sanctions to punish Russia for its aggressive policies in Ukraine on Monday, Vladimir Putin was thousands of miles away in oil rich east Siberia making friendly with a visiting Chinese official.
“On the whole we are very careful about allowing our foreign partners in, but of course for our Chinese friends there are no limits,” Russia’s president said.
China is emerging as the winner in the Ukraine crisis even as Russia’s relations with the US and the European Union go from bad to worse. It has secured a huge gas deal with Gazprom and is making strides towards greater involvement in the Russian oil and gas production. Read more
It has been a shocking day in the progress of the crisis in Ukraine. As evidence mounts of yet more direct and duplicitous Russian military activity on Ukrainian soil, Russian assets have taken a hammering. The rouble fell 1.5 per cent against the dollar even after paring earlier losses and the RTS index of Russian stocks was down 3.3 per cent on the day, also after staging a recovery.
President Vladimir Putin denies Russia is involved in Ukraine at all, even as the Russian people hail him as a conquering hero with popularity ratings to match. But the chances that his adventure will be to their benefit are looking increasingly slim. As Neil Shearing of Capital Economics argued in a note on Thursday, “Russia is likely to be the major loser from any further escalation in the conflict.” Read more
By Timothy Ash of Standard Bank
The crisis in Ukraine continues to go from one worst case scenario to the next with little sign of any near term prospect of compromise or resolution.
High hopes were set on Wednesday’s Minsk summit but little was achieved in effect – beyond a photo op for Vladimir Putin, Russia’s president, who spun a yarn that he is really, truly interested in peace, and in any event that Russia is in fact not a party to the current conflict. Read more
On Friday, as Russian trucks carrying humanitarian aid entered eastern Ukraine, another, less remarked on convoy was on its way to the Donbas. Dozens of vehicles carrying food, personal hygiene products and medicines entered the region from the west, provided by businesses controlled by Rinat Akhmetov, the Ukrainian billionaire whose industrial assets are concentrated in this part of Ukraine. Read more