Russia 01 (May 08 - Jul 10)

[winston]

Russia billionaire buys world's most expensive villa: report
AFP

NICE, France (AFP) - - Russian billionaire Mikhail Prokhorov has bought the world's most expensive villa, a former royal palace, on the French Riviera for nearly half a billion euros, a press report said Saturday.T

Villa Leopolda, built in 1902 for Belgian king Leopold II near Cap Ferrat, not far from Nice and Monaco, was sold to the former head of Russian mining giant Norilsk Nickel for 496 million euros (730 million dollars), Nice Matin newspaper reported.

Earlier owners include the late Italian industrialist and principal shareholder of Fiat, Giovanni Agnelli, and Lebanese-born Swiss banker Edmond Safra, whose widow Lily Safra was now selling the property.

Safra died at his Monaco home in 1999 in a fire that was deemed arson.

The Nice Matin report could not immediately be confirmed independently.

Forbes magazine has ranked Prokhorov's 19.5-billion-dollar fortunes sixth in Russia and 24th worldwide.

The Russian tycoon quit Norilsk, the world's biggest palladium and nickel producer and also a leading platinum and copper producer, after he and 25 other people were taken in for questioning at his hotel in the French ski resort of Courchevel over a suspected prostitution ring last year.

He now heads Onexim group, a Russian investment fund specialised in new technologies.

After the January 2007 Courchevel incident Prokhorov in December demanded an apology for his arrest, urging officials to close the case.

Police had swooped on the hotel after an investigation suggested prostitutes had been procured for guests there.

Those held for questioning included several Russian businessmen and eight women in their twenties who said they were models accompanying Prokhorov.

No charges were finally brought for lack of evidence.

His friends claim however the Courchevel arrest did "immense damage to his image" at home.

[ishak]

The Analyst: Russia looks far from a bear market
The Independent, 23 August 2008

Conflict between nations often puts a dent in investor sentiment. This was in evidence recently when the Russian market reacted very negatively to the conflict in South Ossetia.

But the Russian market was weighed down by other factors before the conflict. Chief among these were a fall in the oil price and the government's interference in the pricing of coal. South Ossetia was just another factor adding fuel to the fire. However, this should not have a significant impact on Russia's economy or corporate fundamentals. Over the long term, these are what will drive market performance .

Although Russia has a poor image in the West, we should not lose sight of the investment opportunities the region has to offer. Valuations are now at levels last seen over five years ago, making them highly attractive. The difference today is that the Russian economy is significantly stronger than back then. Also remember that the oil price was around $30 (£16) per barrel five years ago compared to over $100 (£54) now, and this has been a huge driver of Russia's growth.

The Russian market has gone up by more than 1,400 per cent over the last 10 years. It continues to offer compelling opportunities and, while there are various routes into the region, I believe the JPMorgan New Europe Fund is worth considering.

The advantage of this fund is that its investment universe extends beyond Russia. It currently has 66 per cent in Russia, but the fund also invests in the fast growing regions of Eastern Europe. This gives it an element of diversity in what is a higher risk region.

What's more, JPMorgan was an early investor in the region. The fund has been managed by Oleg Biryulyov since its launch in 1997. He is based in Moscow, but supported by a co-manager, Sonal Pandit, in London.

There are currently three dominating themes in the portfolio. The commodity cycle is one; oil and gas accounts for nearly two-thirds of Russia's exports and the general rise in prices have helped bolster Russian growth. Russia's dependency on these commodities is high, so economic diversification is the government's top priority.

This leads into the next theme of consumption and infrastructure spending. Wages have risen over time and domestic consumer demand has been strong as a result. In terms of infrastructure, a vast sum of money is being directed into the country which will boost the construction, property and transport industries. One of the south-western cities, Sochi, is hosting the 2014 Winter Olympics, which is also due to prompt a large cash injection into the region.

The final theme is the expanding links between Central and Eastern Europe. This has been leading to an alignment of the legal and economic frameworks, a lowering of interest rates, and the development of the financial sector. Experience from countries that have joined the EU shows productivity and real wages have risen substantially from low levels and this has helped businesses to grow.

This is a fairly aggressive fund with a focused portfolio of 45 to 65 holdings. The manager will put full conviction behind his ideas; if he doesn't like a stock, he won't own it. A good example is Gazprom, which the fund currently has no exposure to, despite the fact it makes up over 26 per cent of the Russian index.

Instead, the manager is positive on companies such as Mechel, which should benefit from the infrastructure story despite the bad publicity it has received recently.

Few funds have delivered a positive return over the last year but this one has. It is up 11.4 per cent versus 5 per cent for the MSCI Emerging Markets Europe Index.

Although past performance is not always a guide to future returns. There are some fruitful investment opportunities in Russia and its neighbouring regions, and this fund is well placed to capture those long-term growth prospects.

[millionairemind]

Russian reserves fall sharply on war with Georgia
By Polya Lesova, MarketWatch
Last update: 1:19 p.m. EDT Aug. 22, 2008Comments: 25NEW YORK

(MarketWatch) -- Russia's foreign exchange reserves fell by $16.4 billion during the week after the military conflict with Georgia broke out, suffering one of the biggest weekly declines since the 1998 financial crisis.
Russia's international reserves dropped by $16.4 billion to stand at $581.1 billion during the week from Aug. 8 to Aug. 15, according to figures released Thursday by the central bank of Russia.

This is the largest weekly drop in reserves since the 1998 Russian crisis, with the exception of one week in June 2006 when Russia paid a part of its Paris Club debt, according to Danske Bank.

"The drive of this decline is portfolio outflows," said Lars Christensen, chief analyst at Danske Bank. "The move since the beginning of the conflict is almost entirely driven by rising geopolitical tensions and investors taking off the bet on the Russian economy."

"It's pretty clear that we're back to the worst geopolitical tensions since the end of the Cold War," Christensen said.


Fighting between Russian and Georgian forces broke out on Aug. 8 over the breakaway region of South Ossetia and hostilities quickly spread to Georgia proper. Last week, Georgian and Russian leaders agreed to a peace plan mediated by European diplomats.

However, tensions between Russia and the West have continued to escalate, especially after the United States signed a deal with Poland to position missile interceptors on Polish soil. Russia warned that this could fuel an arms race and said its response will go beyond diplomacy.

"So long as Russia remains confrontational, investor sentiment will remain poor towards Russian equities, the ruble and fixed income markets," said Paul Biszko, senior emerging markets analyst at RBC Capital Markets.
"No one clearly wants to buy the sell-off yet," Biszko said. "People are waiting to see how the conflict evolves and whether it blows up into a more serious issue."

Since August 7, Moscow's benchmark RTS stock index has fallen 7.6%. The index's market capitalization has declined by $12 billion to stand at $144 billion in the same period, according to data from the website of the Russian Trading System.
Year to date, the RTS index has fallen 25.7% compared with a 23% decline in the MSCI Emerging Markets index.
Even before the war with Georgia, investor sentiment toward Russia was already damaged by Prime Minister Vladimir Putin's call for an investigation of steel company Mechel, which wiped out billions of dollars of its market capitalization, as well as by the ongoing dispute between BP PLC and their Russian partners in their joint venture TNK-BP.

U.S. dollar appreciation and falling gold prices together contributed roughly $5.5 billion to the decline in Russia's foreign exchange reserves in the week ending Aug. 15, wrote analysts at Goldman Sachs New Markets Economic Research.

"But even so, we estimate that there was roughly a $15 billion capital outflow last week," the Goldman Sachs analysts said.
The first two days of the war in South Ossetia triggered a sharp depreciation of the ruble against its dollar/euro (55%/45%) dual currency basket. That depreciation was stopped only by central bank interventions.
"We now have an idea of the magnitude of those interventions," the Goldman analysts said. "The size of the outflow is also an indication of the sheer magnitude of long ruble positioning."

[winston]

Not vested in Russia yet.

From Brian Hunt:-

THE WORLD'S WORST ETF RIGHT NOW

Another month, another new low for Russia.

Back in July, we featured a chart of the Templeton Russia Fund, one of the easiest ways for U.S. investors to speculate in Russian stocks.

And Russian stocks can make great speculations... The country holds the world's largest reserves of natural gas. It's the world's second-largest oil producer. It has huge amounts of diamonds, timber, gold, and base metals. So when commodities are rising, Russia is "en vogue."

But the Russian government is as crooked as a dog's hind leg. One minute, a Russian company has billions in assets... the next, the government takes them. This corruption leads to lightning-fast market declines.

We're in "lightning-fast decline" mode in Russia right now. Investors are scared of the war in Georgia. They're scared the government will attack more companies. We advise them to be scared of further weakness in the commodity markets. If oil corrects down to $90, this new downtrend will get much worse.

[-dol-]

Russia is for brave speculators.

Yukos & Mechel just make me think twice about considering Russian equities as investments.

I also remember that Hitler & Napolean got mauled by the Russian bear, with the help of its unforgiving winter...

Can buy when there is blood on the streets, including your own...

[LenaHuat]

Consumer boom in Russia. I think this can last for the next 20 years.

Magnit Billionaire Opens Store Every 27 Hours Amid Russian Boom

By Maria Ermakova and Ellen Pinchuk

Aug. 29 (Bloomberg) -- OAO Magnit, Russia's second-largest supermarket chain, is opening a store every 27 hours to keep pace with demand and may post a record $5.5 billion in sales this year, billionaire founder Sergey Galitskiy said.

Magnit, which owns mainly discount stores, plans to open 320 outlets this year in a $1.5 billion, two-year expansion, Galitskiy said in an interview in his office in Krasnodar, southern Russia, on Aug. 27. The retailer also intends to open 13 hypermarkets to challenge Germany's Metro AG, Groupe Auchan SA of France and St. Petersburg-based OOO Lenta.

``We can keep opening stores in 500 to 600 towns'' because the market isn't close to saturated, said Galitskiy, 41, who is also Magnit's chief executive officer. Sales will probably climb about 50 percent in 2008 and the company may pay its first dividend in 2010 or 2011, he said.

Wal-Mart Stores Inc. and Carrefour SA are among retailers expanding in Russia, drawn by the decade-long economic expansion. The average wage has doubled in the past three years, to 17,500 rubles ($712) a month. Retail sales climbed 25 percent to about $440 million last year. Food sales, which account for about half of that total, will grow 21 percent a year through 2010, according to UBS AG.

[millionairemind]

Russia may cut off oil flow to the West
By Ambrose Evans-Pritchard
Last Updated: 9:26pm BST 28/08/2008

Fears are mounting that Russia may restrict oil deliveries to Western Europe over coming days, in response to the threat of EU sanctions and Nato naval actions in the Black Sea.

Any such move would be a dramatic escalation of the Georgia crisis and play havoc with the oil markets.

Reports have begun to circulate in Moscow that Russian oil companies are under orders from the Kremlin to prepare for a supply cut to Germany and Poland through the Druzhba (Friendship) pipeline. It is believed that executives from lead-producer LUKoil have been put on weekend alert.

"They have been told to be ready to cut off supplies as soon as Monday," claimed a high-level business source, speaking to The Daily Telegraph. Any move would be timed to coincide with an emergency EU summit in Brussels, where possible sanctions against Russia are on the agenda.

Any evidence that the Kremlin is planning to use the oil weapon to intimidate the West could inflame global energy markets. US crude prices jumped to $119 a barrel yesterday on reports of hurricane warnings in the Gulf of Mexico, before falling back slightly.

Global supplies remain tight despite the economic downturn engulfing North America, Europe and Japan. A supply cut at this delicate juncture could drive crude prices much higher, possibly to record levels of $150 or even $200 a barrel.

With US and European credit spreads already trading at levels of extreme stress, a fresh oil spike would rock financial markets. The Kremlin is undoubtedly aware that it exercises extraordinary leverage, if it strikes right now.

Such action would be seen as economic warfare but Russia has been infuriated by Nato meddling in its "backyard" and threats of punitive measures by the EU. Foreign minister Sergei Lavrov yesterday accused EU diplomats of a "sick imagination".

Armed with $580bn of foreign reserves (the world's third largest), Russia appears willing to risk its reputation as a reliable actor on the international stage in order to pursue geo-strategic ambitions.

"We are not afraid of anything, including the prospect of a Cold War," said President Dmitry Medvedev.

The Polish government said yesterday that Russian deliveries were still arriving smoothly. It was not aware of any move to limit supplies. The European Commission's energy directorate said it had received no warnings of retaliatory cuts.

Russia has repeatedly restricted oil and gas deliveries over recent years as a means of diplomatic pressure, though Moscow usually explains away the reduction by referring to technical upsets or pipeline maintenance.

Last month, deliveries to the Czech Republic through the Druzhba pipeline were cut after Prague signed an agreement with the US to install an anti-missile shield. Czech officials say supplies fell 40pc for July. The pipeline managers Transneft said the shortfall was due to "technical and commercial reasons".

Supplies were cut to Estonia in May 2007 following a dispute with Russia over the removal of Red Army memorials. It was blamed on a "repair operation". Latvia was cut off in 2005 and 2006 in a battle for control over the Ventspils terminals. "There are ways to camouflage it," said Vincent Sabathier, a senior fellow at the Centre for Strategic and International Studies in Washington.

"They never say, 'we're going to cut off your oil because we don't like your foreign policy'."

A senior LUKoil official in Moscow said he was unaware of any plans to curtail deliveries. The Kremlin declined to comment.

London-listed LUKoil is run by Russian billionaire Vagit Alekperov, who holds 20pc of the shares. LUKoil produces 2m barrels per day (b/d), or 2.5pc of world supply. It exports one fifth of its output to Germany and Poland.

Although Russia would lose much-needed revenue if it cut deliveries, the Kremlin might hope to recoup some of the money from higher prices. Indeed, it could enhance income for a while if the weapon was calibrated skilfully. Russia exports roughly 6.5m b/d, supplying the EU with 26pc of its total oil needs and 29pc of its gas.

A cut of just 1m b/d in global supply – and a veiled threat of more to come – would cause a major price spike.

It is unclear whether Saudi Arabia, Kuwait or other Opec producers have enough spare capacity to plug the shortfall. "Russia is behaving in a very erratic way," said James Woolsey, the former director of the CIA. "There is a risk that they might do something like cutting oil to hurt the world's democracies, if they get angry enough."

Mr Woolsey said the rapid move towards electric cars and other sources of power in the US and Europe means Russia's ability to use the oil weapon will soon be a diminishing asset. "Within a decade it will be very hard for Russia to push us around," he told The Daily Telegraph.

It is widely assumed that Russia would cut gas supplies rather than oil as a means of pressuring Europe. It is very hard to find alternative sources of gas. But gas cuts would not hurt the United States. Oil is a better weapon for striking at the broader Western world.

The price is global. The US economy could suffer serious damage from the immediate knock-on effects.

While the Russian state is rich, the corporate sector is heavily reliant on foreign investors. The internal bond market is tiny, with just $60bn worth of ruble issues.

Russian companies raise their funds on the world capital markets. Foreigners own half of the $1 trillion debt. Michael Ganske, Russia expert at Commerzbank, said the country was now facing a liquidity crunch. "Local investors are scared. They can see the foreigners leaving, so now they won't touch anything either. The impact on the capital markets is severe," he said.

[-dol-]

Russia may be weaker these days but it's still dangerous.

All things start with a deceptively minor event. Could this be a precursor to Cold War II?

The Western European countries in the EU may fear breaking off economic/political ties with Russsia can hurt them more than Moscow, but the ex-Baltic states and other former communist countries wants to show Russia it will pay a price for what happened in Georgia. Stay tuned to the EU's response on a meaningful sanction. And do not underestimate Russia's willingness to flex some muscle - via oil & natural gas.

It should be early days yet to dismiss the impact of oil. The longer it stays above US$110, the more likely it is capable of ensuring more rocky days ahead for equities.

Russia is a wildcard that could be significant when the big $ returns after the Labour holiday weekend.

Those who cannot resist a skirmish or two can send in their advance troopers but the main army can probably be used on a better day. Just remember that a wounded bear is no easy meat.

[winston]

Stats of the Week:- 18%

Decline in the Russian stock market this month, making it the worst-performing major stock market in the world.

Russian stocks are at their lowest point since 2006.

[millionairemind]

A land rush in rural Russia
By Andrew E. Kramer Published: August 31, 2008

PODLESNY, Russia: The fields around this little farming enclave are among the most fertile on earth. But like tens of million of acres of land in this country, after the collapse of the Soviet Union, they literally went to seed.

Now that may be changing. A decade after capitalism transformed Russian industry, an agricultural revolution is stirring in the countryside, shaking up village life and sweeping aside the collective farms that resisted earlier reform efforts and remain the dominant form of agriculture.

The transformation is being driven by soaring global food prices (the price of wheat alone rose 77 percent last year) and a new change allowing foreigners to own agricultural land. Together, they have created a land rush in rural Russia.

"Where else do you have such an abundance of land?" Samir Suleymanov, the World Bank's director for Russia, asked during an interview.

As a result, the business of buying and overhauling collective farms is suddenly and improbably very profitable, attracting hedge fund managers, Russian oligarchs, Swedish portfolio investors and even a descendant of White Russian émigré nobility.
Full story
http://www.iht.com/articles/2008/08/31/ ... s/food.php