As the old saying goes, 'buy' when stocks are hated and there's blood in the streets but for the Russian market, one might want to sit on their hands before buying the Russian ETF RSX until Mr. Putin becomes more "market friendly".
It would seem Putin’s dream of making Russia one of the world’s five biggest economies by 2020 is now in ruins, according to Sergei Guriev, a former economic adviser to Prime Minister Dmitry Medvedev who fled to Paris last year. He says it could have been achieved had Putin focused on delivering economic growth of 5 percent to 6 percent as promised.
“Russia had such a massive potential because of its inefficiencies that it was perfectly feasible to achieve this rate of economic growth,” said Guriev. “What changed is that the government decided not to fulfill its promises.”
According to Bloomberg The sentiment was different in 2000, when Putin replaced Boris Yeltsin. One of his early acts was to close Russia’s radar base in Cuba, the only intelligence-gathering center it had in the Western Hemisphere. He also shut a naval base in Vietnam, its biggest outside Warsaw Pact countries. After the Sept. 11 attacks, Putin pledged unconditional support for the U.S.
Those days are now consigned to what might have been. Putin began turning away from his new friends as early as 2003, and accelerated the retreat as his third term in the Kremlin got under way in 2012. He cracked down on dissidents, curbed economic freedoms and, this year, fomented the rebellion in eastern Ukraine. The engagement with Ukraine has put the economy on a far weaker growth path.
Additionally, Russia's GDP has been suffering as the price of oil has fallen at the same time U.S. and UK sanctions are applying pressure. Now bordering on recession, Russia suffers mounting international sanctions and, increasingly, is a pariah in capital markets. While the MSCI World Index of equities is up 9.7 percent from a year ago, the Micex is down 2.9 percent. The ruble, which today reached a record low, has fallen 30 percent since Putin first became president.
Global investors withdrew about $850 million from Russian bond and stock funds in the year through Sept. 24, according to data compiled by EPFR Global in Cambridge, Massachusetts. Economy Minister Alexei Ulyukayev said on Sept. 18 that this month’s arrest of billionaire Vladimir Evtushenkov could lead to increased capital flight.
Russian Central Bank denies rumors they will institute controls to try to stem capital flow out of the beleaguered country, feeling they would be a action of last resort according to Reuters. What comes next is anyone's guess but it would seem Putin has been put in check and the next move is his.
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