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“Russia is booming,” says Bill Bonner on Dailyreckoning.co.uk. But every banker in Russia still remembers 1998 with a degree of horror, say Stephan Dertnig and Johannes Börner of the Boston Consulting Group. Back then, a burgeoning budget deficit led to the default of the Russian government and the collapse of the rouble. “The meltdown of the banking system ensued in just one morning.”
But since then, Russia has become a “completely different country”. Record oil prices have boosted the economy by more than 6% for the past four years. Credit ratings are improving at the fastest pace ever and the benchmark stock index is at an all-time high. Foreigners will own a record $58.8bn of Russian company bonds by year-end, more than double the amount held two years ago, Trust Investment Bank, a former subsidiary of Yukos, told Bloomberg. Furthermore, a study by the Foreign Investment Advisory Council showed that 90% of Russian investors reported revenue growth of 10% or more.
This upsurge could bring great opportunities for Russian firms and internationals seeking to invest there. Particularly banks, as “Russia has attributes that many international banks would find attractive”, say Dertnig and Börner.
Russia’s GDP growth has been averaging 5%-7% for seven years, and it has been running a budget surplus since the turn of the century, allowing it to pay off debts and build up reserves. Much of this growth has been driven by oil exports – but it’s also one of the largest exporters of gas, nickel, steel and aluminium.
Notable success stories already investing in Russian banking include International Moscow Bank – a subsidiary of Hypo Vereinsbank (Germany) and Nordia, a Scandinavian bank. To invest more generally, look at the ING Russia fund (LETRX), up 64% in 2005. However, Russia is known for its volatility and this fund is no exception – it lost 83% in 1998, followed by a 160% gain in 1999.
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Annunziata Rees-Mogg
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