Saturday, 19 June 2010

Shuvalov urges caution on Russian stock markets

As Russia welcomed the world’s financial movers and shakers to the St. Petersburg International Economic Forum, vice president Igor Shuvalov appeared to shoot himself in the foot.

Shuvalov warned investors off the Russian stock exchanges in an interview published on the eve of the forum – alarming analysts.

“I’d be very cautious about stock investments in this country,” Igor Shuvalov said in a TV interview. “I would welcome real investors who can build factories, something new in this country.”

“If we have investors wishing to buy, they are welcome,” Shuvalov said. “There will not be any kind of delay if we have a real investor who says, ‘We want a certain asset, please organize an auction.’ We need just 45 days.”

But while analysts generally supported Shuvalov’s ideas, they were concerned about how he had presented them.

Campaigning for the real sector of economy against the stock market is pointless, executive Vice President of Lombard Odier Alexander Kochubei told Vedomosti newspaper. “Those who invest in the real sector and the stock market, are principally different types of investors,” he said.

Uralsib’s chief strategist Cris Weafer, in his note to investors, was also baffled by Shuvalov’s comments. “It is unusual, to say the least, to have a senior minister, whose role it is to promote a more positive investment image of the country, to say he would ‘be very cautious about stock investments in this country’,” he wrote. “For sure, the country does need to attract significantly more direct investment but that usually goes hand-in-hand with a strong stock market.”

However, Alexei Petrov, head of analytical development at Arbat Capital, was more supportive of Shuvalov, warning that speculative capital on stock exchanges is more mobile and sensitive to changes on world markets.

“Its excess influx in the country traditionally leads to overheating and inflating of bubbles, its sudden escape turns the still weak financial markets into ruins,” Pavlov told

Shuvalov urged time, patience and long-term investment as Russia looks to modernize. He suggested that growth rates should hover around 5 per cent to control spending, and there should be no hurry to allow the rouble to trade freely in case it hampered domestic producers.

“The conversion to a knowledge-based economy while having 7 per cent growth rates is extremely difficult, because there’d be a big inflow of capital and everybody would want social spending,” Shuvalov said. “Growth of 4 to 5 per cent would let us really modernize.”

At the same time, it isn’t fair to compare Russia with its BRIC peers Brazil, India and China, because of structural differences in their economies, whose growth exceeds Russia, according to Shuvalov. Russia is interested in “quality” changes to its economy rather than high growth rates, he said.

The Russian economy expanded 2.9 percent in the first quarter, compared with annual rates of 9 per cent in Brazil, 11.9 per cent in China and 8.6 per cent in India.

However, the day after Shuvalov’s remarks, president Dmitry Medvedev called for faster growth in the national economy in his speech to the Petersburg forum.

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