Page 20 - BNE_magazine_06_2020 Growers

20 I Companies & Markets bne June 2020
31% from a peak of c.34.5% a year ago, but the market has already stabilised and investors are returning, as their choices, if they want to make some money, are limited.
Russia has taken a heavy blow from the double-headed crisis of an oil price shock and the stop-shock related to the lockdowns that went into effect on March 30.
But it is also one of the best prepared countries in the world
to cope with a large shock, as it has been anticipating the imposition of new harsh sanctions by the US for more than five years, which would have also been a shock to the economy. Russian President Vladimir Putin's efforts to build a “fiscal fortress” to cope with a potential US economic attack were already complete at the start of this year, and while the US
“Russia’s economy won’t escape unscathed and the nominal GDP shrunk an eye-watering 28% in nominal terms in April”
didn't follow through on threats to try to punish Russia, the country was conveniently shock-proof ready by the time the oil prices collapsed and the virus arrived in Moscow in March.
Russia’s economy won’t escape unscathed and the nominal GDP shrunk an eye-watering 28% in nominal terms (20% in real terms) in April, but the IMF predicts that there will be a rebound in the second half of this year before modest growth returns at the start of next year.
IIF initially predicted a 1% contraction this year, but recently revised its growth forecast for 2020 down further and
now projects a contraction of 5.9%, with large drags from investment (-3.1pp), private consumption (-2.0pp) and net exports (-1.1pp).
Russia GDP y/y %
Macro performance peer review
“Russian assets have performed well in recent weeks – the country is perceived as somewhat of a “safe haven” – and investors appear to be returning after the sell-off across the EM universe earlier in the year,” Elina Ribakova, deputy chief economist with the Institute of International Finance (IIF), and her colleague Benjamin Hilgenstock said in a note published on May 20.
“As we flagged in our White Paper on sanctions, Russia is well-prepared to weather external financing shocks due
to substantial macro buffers, including reserves. However, growth is likely to contract sharply in 2020, and the government’s approval ratings are at 2013 lows,” Ribakova said, adding that with the US elections looming and US President Donald Trump’s total failure to cope with the pandemic Congress could well put Russian sanctions back on the table as it searches for distracting scapegoats.
Russia’s huge cash pile of c.$570bn is reassurance for investors, but so is the Kremlin’s extreme caution, which ensures that money won’t be squandered.
While other governments have rushed out anything between 5% to 20% of GDP fiscal stimulus plans, Moscow has been extremely reticent to spend anything and run down its reserves. as the Kremlin always has its eye on the next crisis – especially as the threat of new sanctions not only remains real, but would become more likely if Russia weakened
itself by spending down its cash hoard.
Another factor that is appealing to investors has been several major policy changes in recent years that benefit investors. The first is the government’s decision to tap the cash in its biggest and most profitable companies not by taxing them, but by forcing them to pay dividends. While the state maintains a controlling majority in its blue chip stars, including the likes of Sberbank, Gazprom and Rosneft, all of these companies have significant minority shareholders, including foreign investors. The Ministry of Finance has been
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