Russia 01 (May 08 - Jul 10)

[millionairemind]

There was an article in this week's Economist that mentioned that this is a losing battle, cos' the depreciation of the rouble is created by the enemy within, Russians themselves, as they hurriedly change their rubles into USD, fearing a repeat of the last ruble devaluation in the 90s.

Russia's International Reserves Fell $3.6 Billion (Update1)
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By Maria Levitov

Nov. 27 (Bloomberg) -- Russia's international reserves fell $3.6 billion last week, the eighth consecutive week of declines, as the central bank sold currency to shore up the ruble.

The value of the reserves shrank to $449.9 billion in the week ended Nov. 21, after plunging $21.9 billion in the previous week, Moscow-based Bank Rossii said in an e-mailed statement today.

The international reserves, the third-biggest after China's and Japan's, have fallen 25 percent from this year's high of $598.1 billion on Aug. 8. The central bank, which buys and sells currency to keep the ruble within a trading band against a dollar-euro basket, spent $57.5 billion to shore it up in September and October, according to Chairman Sergey Ignatiev.

The central bank sold as much as $10 billion in foreign currency last week, estimated Anton Struchenevsky, a senior economist at Moscow-based Troika Dialog. The interventions were smaller than in previous weeks because banks bought rubles to make value-added tax, profit and excise-tax payments for their clients over the next few weeks, he said.

``We have amassed sizable financial reserves which will give us the freedom to maneuver, allow us to maintain macroeconomic stability and, therefore, won't allow a spike in inflation or sharp changes in the ruble's exchange rate,'' Prime Minister Vladimir Putin said on Nov. 20.

China's reserves will ``hopefully'' reach $2 trillion this year, said Yao Jingyuan, chief economist of the nation's statistics bureau. Record trade surpluses helped to push China's holdings to $1.9 trillion at the end of September, according to the central bank.

Russia held 45 percent of its reserves in U.S. dollars, 44 percent in euros, 10 percent in pounds and about 1 percent in yen on Nov. 1, according to the most recent figures released by the central bank.

The ruble was at 27.4005 per dollar by 12:08 p.m. in Moscow, from 27.4384 yesterday. Against the euro, it traded at 35.3919, from 35.3456. The Micex stock index rose for the first day in three, gaining 7.4 percent to 631.62 at 12:15 p.m. in Moscow.

``The ruble is probably overvalued for the economic conditions that we are going to see over the next few years and needs to come back by 10 to 20 percent in order to give competitiveness back to the export sector,'' Gary Dugan, Merrill Lynch & Co.'s chief investment officer, said yesterday.

[millionairemind]

This can be very destablising....

Russia Depreciates Ruble for 4th Time in Month as Oil Falls
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By Emma O’Brien

Dec. 5 (Bloomberg) -- The ruble dropped to near the lowest in three years against the dollar after the central bank widened the currency’s trading band as the price of Urals crude, Russia’s main export, fell below $40 a barrel.

“The corridor has been widened,” a Bank Rossii official who declined to be identified on bank policy said in a telephone interview from Moscow today.

Bank Rossii has drained a quarter of the nation’s foreign- currency reserves and raised interest rates twice last month to arrest a 17 percent drop in the currency since August.

“Given oil is already below $40 a barrel we can’t rule out more depreciation,” said Evgeny Gavrilenkov, chief economist at Troika Dialog in Moscow, Russia’s oldest investment bank. “Any further devaluation depends on oil.”

The currency slid as much as 1.2 percent to 28.1207 per dollar today, the weakest since February 2006. It traded at 35.9162 per euro, the lowest since Oct. 3.

The central bank buys and sells foreign currency to keep the ruble within a target trading band, which is managed against a basket of dollars and euros. Policy makers have widened the corridor four times since Nov. 11.

Urals crude, Russia’s main oil export blend, slid to $39.34 a barrel yesterday, the lowest in three years.

“We could see the ruble 15 percent weaker against the basket in the six months and 20 percent weaker in 12 months,” said Elisabeth Andreew, chief currency strategist in Copenhagen at Nordea AB, Scandinavia’s biggest bank. “We will see more gradual devaluations of around 1 percent at a time.”

[winston]

Vnesheconombank, [Russia's] state-controlled development bank in charge of the government's $200.0 billion aid package, is asking for $34.0 billion from the state, according to Russian press reports on Wednesday. Fortunately for the bank better known as VEB, this is a request that has little chance of being thwarted, given that the chair of its board is none other than Prime Minister Vladimir Putin.

Earlier this week Vladimir Dmitriyev, the bank's chief executive, said the company needed "hundreds of billions of rubles" to shore up its balance sheet. Economy Minister Elvira Nabiullina acknowledged that the bank needed support, and that "the size of support is being discussed," according to Itra-Tass news agency.

VEB is also the manager of a $24.0 billion fund created to buy Russian stocks to help prop up the Russian stock market, which has suffered severely as foreign investors have fled emerging markets amid the global financial crisis.

– Forbes

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The European Commission proposed Wednesday that the EU improve stability on its eastern doorstep by improving relations with Ukraine and five other ex-Soviet republics, countries Moscow regards as its backyard.

The EU, which gets about one-third of its oil and about 40 percent of its natural gas imports from Russia, hopes to become less dependent on Moscow.

The EU wants to see a gas pipeline from the Caucasus fully skirting Russia. Russia is pushing for deals under which Turkmenistan and Kazakhstan will ship their Caspian Sea gas through Russia.

– Associated Press

[winston]

THE WORST STOCKS IN THE WORLD by Brian Hunt

Our chart today is one of the darnedest things we've ever seen here at DailyWealth. It's the past five years' trading in Russian stocks.

As we've covered many times, Russia is a classic "boom and bust" stock market for two reasons...

One, the country has incredible amounts of natural resources like oil, natural gas, zinc, copper, timber, and diamonds. When commodities rise, Russia soars. Two, it's one of the most corrupt business environments on Earth. This provokes selling panics.

Russia boomed like crazy from 2002 to 2008. Commodity prices were rising... and the Russian stock market climbed an amazing 1,300%. Now, it's busting like crazy. With a drop of 75% from its summer peak, Russia has lost a stunning amount of paper wealth. Will vodka sales rise or fall?

[LenaHuat]

Capitalism in Russia is only a decade old and emerging markets have classically been crazy.

[millionairemind]

Not good.. this might have severe repercussions on the bond markets and consequently the stock market..

Russia Devaluation Gathers Pace as Central Bank Loosens Control
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By Emma O’Brien

Dec. 11 (Bloomberg) -- Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after reserves fell $161 billion defending the exchange rate.

Bank Rossii extended the amount the ruble can decline against a target exchange rate to 7.7 percent, from 6.7 percent yesterday and 3.7 percent a month ago. The band was widened by 30 kopeks today, said a spokesman who declined to be identified on bank policy. The currency weakened 0.7 percent against the basket.

http://www.bloomberg.com/apps/news?pid= ... refer=home
http://www.bloomberg.com/apps/news?pid= ... refer=home

[kennynah]

MM :

please teach me...

how can the devaluing of the ruble affect their bond and stock market?
thanks

[millionairemind]

Back in 1998, when Russia defaulted on their foreign debts, it caused major repercussions for hedge funds which were highly leveraged like Long Term Capital Management.

LTCM was so highly leveraged that it almost brought down the whole system. Here is something which might be useful. The detail story was captured in the book When Geniuses fail.

Not sure if this explanation suffice. Hope this helps.

The Proximate Cause: Russian Sovereign Default
The proximate cause for LTCM's debacle was Russia's default on its government obligations (GKOs). LTCM believed it had somewhat hedged its GKO position by selling rubles. In theory, if Russia defaulted on its bonds, then the value of its currency would collapse and a profit could be made in the foreign exchange market that would offset the loss on the bonds.

Unfortunately, the banks guaranteeing the ruble hedge shut down when the Russian ruble collapsed, and the Russian government prevented further trading in its currency. (The Financial Post, 9/26/98). While this caused significant losses for LTCM, these losses were not even close to being large enough to bring the hedge fund down. Rather, the ultimate cause of its demise was the ensuing flight to liquidity described in the following section.

The Ultimate Cause: Flight to Liquidity

The ultimate cause of the LTCM debacle was the "flight to liquidity" across the global fixed income markets. As Russia's troubles became deeper and deeper, fixed-income portfolio managers began to shift their assets to more liquid assets. In particular, many investors shifted their investments into the U.S. Treasury market. In fact, so great was the panic that investors moved money not just into Treasurys, but into the most liquid part of the U.S. Treasury market -- the most recently issued, or "on-the-run" Treasuries. While the U.S. Treasury market is relatively liquid in normal market conditions, this global flight to liquidity hit the on-the-run Treasuries like a freight train. The spread between the yields on on-the-run Treasuries and off-the-run Treasuries widened dramatically: even though the off-the-run bonds were theoretically cheap relative to the on-the-run bonds, they got much cheaper still (on a relative basis).

What LTCM had failed to account for is that a substantial portion of its balance sheet was exposed to a general change in the "price" of liquidity. If liquidity became more valuable (as it did following the crisis) its short positions would increase in price relative to its long positions. This was essentially a massive, unhedged exposure to a single risk factor.

As an aside, this situation was made worse by the fact that the size of the new issuance of U.S. Treasury bonds has declined over the past several years. This has effectively reduced the liquidity of the Treasury market, making it more likely that a flight to liquidity could dislocate this market.
http://www.erisk.com/Learning/CaseStudi ... agemen.asp

[winston]

Russians Buy Jewelry, Hoard Dollars as Ruble Plunges By Emma O’Brien and William Mauldin

Dec. 11 (Bloomberg) -- Moscow resident Tima Kulikov banked on the full faith and credit of the U.S. government, not the Kremlin, when he sold his biggest asset for cash.

The 31-year-old director of a social networking Web site initially agreed to sell his apartment for rubles, then cringed at the thought of the currency weakening as it sat in a lockbox pending settlement of the contract. It wasn’t until the buyer showed up with $250,000 stacked in old mobile-phone boxes and stuffed in his pockets that Kulikov closed the deal.

“The exchange rate we agreed on wasn’t great, but I did it because the money’s going to lie there for a month,” Kulikov said. “Put it this way, the ruble’s more likely to have problems than the dollar.”

Russians are shifting their cash into foreign currencies and buying things they don’t need as the economy stalls and the central bank weakens its defense of the ruble, signaling a larger devaluation may be on the way. The currency has fallen 16 percent against the dollar since August, when Russia’s invasion of neighboring Georgia helped spur investors to pull almost $200 billion out of the country, according to BNP Paribas SA.

The central bank today expanded the ruble’s trading band against a basket of dollars and euros, allowing it to drop 0.8 percent, said a spokesman who declined to be identified on bank policy.

With the specter of the 1998 debt default and devaluation in mind, Russians withdrew 355 billion rubles ($13 billion), or 6 percent of all savings, from their accounts in October, the most since the central bank started posting the data two years ago. Foreign-currency deposits rose 11 percent.

Oligarchs Pinched

Those withdrawals are increasing pressure for the ruble’s devaluation, according to Basil Issa, an emerging- markets analyst at BNP Paribas in London.

Property is now a protective investment, not just a status symbol, said Sergei Polonsky, founder of real estate developer Mirax Group, which is building Moscow’s tallest skyscraper.

“Lately our clients are mostly those who buy real estate not to live in but to secure their investments,” Polonsky said. “No one wants to be left with pieces of paper.”

The 25 wealthiest Russians on Forbes magazine’s list of billionaires, including Oleg Deripaska and Roman Abramovich, lost a combined $230 billion from May to October as asset values plummeted, according to Bloomberg calculations.

‘Feel Happy’

For the burgeoning middle class, investments of choice range from electronics to gold jewelry. Evroset, Russia’s largest mobile-phone chain, is telling people to buy anything they can.

“It’s better to feel happy that you own something than to fear losing the money you have earned,” Chairman Yevgeny Chichvarkin says in a letter posted at 5,200 Evroset stores. “If you need a car, buy a car! If you need an apartment, buy an apartment! If you need a fur coat, buy a fur coat!”

Sales at Technosila, the third-biggest consumer electronics chain, have doubled since September as customers rush to swap rubles for flat-screen TVs and laptops, spokeswoman Nadezhda Senyuk said by phone from Moscow, where the company is based.

Jewelry sales are also accelerating, particularly items made of gold and diamonds, said Vladimir Stankevich, advertising director at Adamas, Russia’s third-largest jewelry retailer.

“More cash appeared on the market and there’s an opinion among shoppers that gold is a good investment in times of crisis,” Stankevich said.

Natalya Kulikova has a different approach. The 31-year-old sales manager said she’s opened accounts in rubles, euros and dollars at three different banks -- one foreign and two domestic -- to guard her savings.

“My main goal is to save money,” she said.

Putin Pledge

Those who don’t want to spend are keeping more money at home or in safe-deposit boxes because the government guarantee on bank accounts is limited to 700,000 rubles, said Yulia Tsepliaeva, chief economist in Moscow at Merrill Lynch & Co.

Alfa Bank, Russia’s biggest non-state lender, said demand for boxes has increased about 40 percent since October, and there are few available.

“The Russian experience with saving is not that good and people prefer to consume and enjoy rather than save in pre-crisis situations,” Tsepliaeva said. “Buy cash dollars and put them in mattresses or safe deposit boxes but not in accounts because most crises are accompanied by banking crises.”

A decade ago, many lost their life savings after the ruble plunged 71 percent against the dollar. Those fears prompted Prime Minister Vladimir Putin to pledge not to allow “sharp jumps” in the exchange rate, during a call-in television show Dec. 4.

‘Ideal Time’

Troika Dialog, Russia’s oldest investment bank, is betting the central bank will allow a one-time devaluation of the ruble of about 20 percent in January, following New Year’s and Orthodox Christmas celebrations.

“With the holidays at the beginning of January, companies won’t be fully working and people will be spending more money,” said Evgeny Gavrilenkov, Troika’s chief economist and a former acting head of the government’s Bureau of Economic Analysis. “That means demand for rubles will increase and that means it’s an ideal time to allow a devaluation.”

Russia has drained almost a quarter of its foreign-currency reserves, the world’s third-largest, since August as it tries to slow the ruble’s decline. The central bank has widened the trading band five times in the past month, effectively reducing its defense of the currency amid plunging oil prices.

Devaluation Skeptic

Urals crude, Russia’s main export earner, has slumped 72 percent since reaching a record $142.94 a barrel July 4. It fell below $40 for the first time in three years last week, compared with the $70 needed to balance the country’s budget.

The government will avoid a large, one-step devaluation because it wants to prevent a run on the banks and lure back foreign investors, said Chris Weafer, chief strategist in Moscow at UralSib Financial Corp.

“I’m skeptical a 10 to 15 percent devaluation will provide a significant boost for the economy because the sector that it will most benefit, manufacturing, is just too small,” he said.

The ruble will probably be allowed to drop in small steps to as low as 33 per dollar by the middle of 2009, from about 28 now, Weafer estimates. It will end next year at 26.8 because of a recovery in oil prices and a weaker U.S. currency, he said.

Svetlana Guseva isn’t taking any chances.

The 32-year-old mother of two from the southern city of Sochi plans to take her 8-year-old daughter, Dasha, to Moscow for the New Year’s holiday, a trip that will cost twice her family’s monthly income of about 30,000 rubles.

“This way at least we’ll have some memories,” she said.

[millionairemind]

Dec 20, 2008
Russian gloom deepens
Russian gloom deepens as 400,000 lose jobs in Nov

MOSCOW - AROUND 400,000 Russians lost their jobs in November, official data showed on Friday, as evidence grew that the economy was plunging toward a recession expected to last until at least mid-2009.
The number of unemployed rose to a 1-1/2 year high of 5 million people in November from 4.62 million in October to stand at 6.6 per cent of the workforce compared with 6.1 per cent in October.

Factories in the car, metals, coal and construction industries sent thousands of workers on unpaid leave in recent weeks as they halted production due to falling demand and swelling inventories.

'The situation is getting worse every day,' said Mr Yevgeny Gontmakher, head of the Academy of Science's Social Policy Centre, who forecasts 10 per cent unemployment if, as many economists now expect, the economy stops growing next year.

Russia, which has enjoyed annual growth of around 7 per cent in recent years, has seen its fortunes turn around with the collapse of oil prices, the global credit crunch and flight of investors from emerging markets.

A tight labour market was seen as one of the signs of economic overheating earlier this year as Russia brought in millions of migrant workers from neighbouring countries to work on sprawling construction sites in large cities.

Russia now expects its growth rate to fall to 2.4 per cent in 2009 provided the oil price stays at US$50 (S$73) per barrel throughout the year and government measures to support the economy work. A forecast based on US$32 per barrel has been discussed but not made public.

The World Bank said if the oil price were to fall to US$30 per barrel Russia may need to turn to international financial institutions to prop up the budget. Russia plans to review the budget early next year.

Waning hope
Prime Minister Vladimir Putin has announced a rise in unemployment benefits from 2009, while the government has also pledged support for enterprises which are a single large employers in a city, 'to maintain social-economic stability'.

Russia saw little public unrest during the oil boom years when household incomes were rising at double-digit rates. With rising jobless numbers and falling income growth media reports about protests and hunger strikes become more frequent.

Mr Putin said last week the unemployment situation was 'worrying' and pledged 50 billion roubles (S$2.63 billion) in the budget to increase benefits and create public sector jobs.

Mr Gontmakher said social unrest was likely if the unemployment rate hits 15 per cent.

Friday's data also showed retail sales growing at their slowest pace in five years, real disposable incomes down, capital investment by Russian companies growth at a near-three year low and producer prices posting a record fall.

The readings for the unemployment rate, PPI, capital investment and retail sales were all gloomier than forecast in a Reuters poll. The data comes a day after the Economy Ministry unveiled its updated forecasts.

With the sharp drop in industrial output recorded last month, household consumption was seen as the last remaining driver of growth as Russians go on a spending spree fearing a sharp devaluation of the rouble.

'Hope for positive growth in the fourth quarter is waning,' said Ms Tatiana Orlova from ING.

'Poor November retail sales and real income data suggest that household consumption is decelerating sharply, increasing the likelihood of a recession in 2009,' Ms Orlova said.

Calls are also growing for the government to shift focus from supporting banks and enterprises to stimulating consumer demand through direct budget handouts, prompting optimism from some analysts.

'It is worrying to see the retail sales and real income numbers slowing this rapidly, but we continue to expect household consumption to be the bright spot next year,' said Mr Rory MacFarquhar from Goldman Sachs. -- REUTERS