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Emerging Markets Guru Mark Mobius on the Russian Evolution

August 30, 2012 | About:

From the desk of Mark Mobius:

It might be tempting to say “everything old is new again” in Russia, given the return of Vladimir Putin to the presidency after a four-year hiatus, an interesting development in the country’s political evolution. I think Russia has also evolved a great deal as an investment destination in the past two decades and holds great potential, although there is still more work to be done to open the markets and instill investor confidence.

Russia is the largest country in the world in terms of land mass (17 million sq. km),1covers nine time zones and boasts a rich and ancient history, abundant natural resources and a resilient and well-educated population. The literacy rate is near 100% and there are more than 1,000 institutions of secondary education attended by more than 8 million students.2 Russia has often been characterized by its harsh climate, and its economy has weathered equally harsh challenges throughout its history. I’ll save the history lessons for the books, but from an economic standpoint the past two decades have been characterized by periods of growth and crisis leading to progressive steps forward—then back.

While it’s easy to criticize political missteps, I believe there are reasons to be positive about Russia’s economy and finances. In the first quarter of 2012, Russia was the only BRIC nation (the emerging economies of Brazil, Russia, India and China) to experience acceleration in GDP growth from the prior quarter (to 4.9% from 4.8%)3. Russia also boasts enviably low amounts of leverage in its economy; its debt-to-GDP ratio was 8.7%3 in 2011 and domestic credit as a percentage of GDP was 45.9%.4 It also has coffers of $500 billion in foreign reserves and is a major global producer of many commodities, including energy and precious metals.

Russia’s economy could be moving into another evolutionary stage as it just became the 156th member of the World Trade Organization (WTO). There will likely be some short-term adjustments (for example, the removal of tariffs and subsidies could hit certain industries), but this may bring potential long-term support in expanding trade, foreign investment and economic growth. According to World Bank estimates, joining the WTO could boost Russia’s GDP through 2020 to 11% above what it would be without membership, and its people could benefit from increased wages and an improved standard of living as a result.

Link to full article: http://mobius.blog.franklintempleton.com/2012/08/29/the-russian-evolution/?nicamp=other&nichn=markmobius&nismseg=twitter

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