Page 7 - RusRPTSept19

The housing and construction markets are also recovering. In residential housing purchases are being funded by mortgage borrowing as the interest rates continue to fall and are currently around 10%, but will fall further in next few years. Construction has not grown to the point where it has become an economic driver but again the leading companies have benefited.
In general the last years of crisis have caused an across the board consolidation in almost all sectors that has lead to improved efficiency and profitability at the microeconomic level.
When coupled with the large dividend payments – Russian companies are still paying double the amount of dividends to the rest of the MSCI EM index average – Russian stocks have pulled in portfolio investors are the market is up some 30% YTD making the Russian stock market one the best performing in the world.
The bond market, especially the Russian Ministry of Finance ruble- denominated OFZ treasury bills, have also attracted investors attention after the US Federal Reserve bank made it clear it has reversed its tightening policy. Foreigner now hold 30% of outstanding OFZ – a sharp reversal after the sanctions-inspired sell off in the second half of last year.
The upshot is the Ministry of Finance has managed to fulfil around three quarters of its full year borrowing programme in the first six months of this year and has begun to scale back on issues and drive yields down. While yields on OFZ broke through to 9% during the sell off, by August this year they had dropped below the 7% mark.
The Ministry of Finance is flush with money and running a comfortable 2% of GDP surplus on the bank of the bond issues and improved tax collection.
One the political front a series of Moscow opposition protests became violent when the state sent the OMON riot police in apparently with specific orders to beat protestors up in the hope of dissuading more. At the largest (sanctioned) rally more than 60,000 Muscovites took the street to protest, suggesting the violent tactics had backfired. However, the protests remain small and unrest has been limited to the capital. Russians in the regions have become more vocal, but they protest only over specific local issues like landfills and parks.
On the international stage there are clear signs of a thaw with the west. The US imposed the awaited second round of Skripal sanctions, that were purely symbolic in nature and imposed a few restrictions on Russian sovereign bond issues on the primary market, but nothing that is going to lose anyone any money.
With German Chancellor Angela Merkel on the way out French President Emmanuel Macron has become more active and called for a détente with Russia. He seems to have taken up the issue of bring peace about between Russia and Ukraine as his international legacy issue and has been actively courting the Kremlin. While this is unlikely to bring about an end to sanctions the inflows into the capital markets are an obvious early winner.
7 RUSSIA Country Report September 2019 www.intellinews.com