As always, there is a great deal of noise around the Russia story and that makes it difficult for investors to identify the core issues with the greatest impact on risk. There is a lot of concern and speculation over the next steps in eastern Ukraine and the possible consequences for sanctions. Russia is also viewed as being among the most exposed to any deterioration in China’s growth outlook and from the yuan devaluation. On top of which is the daily battering from the sliding oil price.
There can be no argument that Russia is in a very precarious and even dangerous position. The 4.6 per cent preliminary estimate for GDP contraction in Q2 confirms that. But, cutting though the noise and discarding extrapolations and exaggerations, there are two core issues which investors should now be most focused on and which will provide guidance as to whether investment risk is deteriorating or improving. Read more
By Thomas Lassourd and David Manley, Natural Resource Governance Institute
Probably the most dramatic aspect of the early 2015 global economy is the historically low level of commodity prices. Crude oil prices have fallen by 50 per cent since June. But oil is not the only commodity that has stumbled. Since their peak in February 2011, copper prices have dropped 38 per cent and iron ore prices have fallen a staggering 63 per cent.
Predicting the future is a dangerous occupation. Most observers – and the market -did not foresee the dramatic fall that has occurred. Some analysts and the forwards market expect prices to go even lower, before increasing to $65 per barrel in the next two to three years, while others believe prices will slowly rise to $100 per barrel within the same time frame. Read more
Vladimir Putin seemed pretty emphatic on Monday that Russia would stop construction of the South Stream gas pipeline, shelving a strategically important project that Moscow was counting on to cement its influence in south-eastern Europe.
Speaking after talks with President Recep Tayyip Erdogan, his Turkish counterpart, in Ankara, Putin said Russia would abandon the project to bring Russian gas to Bulgaria under the Black Sea, bypassing Ukraine, unless the EU dropped its opposition.
But does this really mark the full stop that it appears to be? It is true that Alexei Miller, CEO of Gazprom, the company charged with building the pipeline, told reporters: “that’s it, the project is closed”. But analysts see a more subtle game in play. Read more
Bahrain, Angola, Ecuador and Venezuela rank as the emerging markets (EM) most vulnerable to a downgrade in their sovereign credit ratings if oil prices do not recover in 2015, Fitch Ratings said in a report published on Tuesday.
With benchmark Brent crude prices close to $80 a barrel, down from $115 a barrel in mid-June, the revenues of all oil producers are under pressure. But due to differing levels of fiscal reliance on oil income, the speed of deterioration in domestic budgetary conditions varies sharply among EM producers. Read more
When oil prices fall, it’s a fair bet that Venezuela’s economy will suffer. After all, that has been the case every time oil prices have fallen in the past. When Venezuela’s official gazette then publishes a legal notice on October 10 saying that its oil-for-loans scheme with China had been tweaked, it is also a fair bet that this would be taken as a sign of Venezuelan economic distress and maybe even a default on loans from its closest ally, China. That is how beyondbrics and many others understood it. How wrong one can be — sort of. Read more
Last month Ricardo Hausmann, a normally mild Harvard academic, set off the equivalent of a financial bomb. The economist suggested that Venezuela had already defaulted on many of its suppliers, its oil service contractors, and its citizens. So who or what might come next?
When Hausmann suggested Wall Street, the market reaction was huge. Indeed Venezuelan bonds, undercut by the falling oil price, have been dropping ever since. Yet it turns out that Venezuela’s latest default has been, in fact, to China. Given that Beijing is one of Caracas’ closest allies, this is surprising. It is also bullish for Wall Street. Read more