the russian market a bastion of stability in a turbulent world and what about the issue of political risk. to discuss this i'm joined by a lot of people for he is head of macro economic analysis and research at unicredit bank russia been heiress he is the editor in chief of business new europe we also have david cranfield he is a partner in c.m.s. and simon thank him for fletcher he is a portfolio manager with renaissance asset managers ok out of time i want to go to you first in china it's the year of the dragon will this be the year of the ball for russian equities with excel we expect quite a significant growth rate of russian equities for this year at the bar you had with twenty five percent or something like that of. these here can be quite strong in terms of autonomy others as well ok then when he said i agree. market is extremely cheap why is it cheap well because it was only a december ok right a cheap it's cheap i mean for

a number of reasons i mean of course we were doing our outlook and never has been so confusing i mean you've got a potential meltdown in europe and at the same time domestically this sort of resurgence of political risk such as it is consequently the investors have all stepped back and waiting to see how it plays out and again with the presidential elections in march i think a lot of people are waiting until that's passed and then then they should come back because if you look at the fundamentals in terms of price to earnings it's very very cheap it hasn't been seen by well there are a lot of unknowns but i mean if you're if you're fairly confident there's not going to be a mouth in europe western europe then you know you're looking at minimum twenty five percent and some of the other brokerages talking sixty percent returns this year and it depends on the you know if you compare it to oil prices ok you get your covering do we. talk about the euro you know is only an oil prices what about you david i mean you optimistic about the russian equities this year and i guess maybe . compared to what i think i'm optimistic this year i mean if you look at last year

there was a falloff in inward investment in the second part of the year but set in the first half inward investment was very strong we've done some analysis of emerging market now it shows that on a number of deals basis there was a there was a very good climb during set in the first half of last year so it shows that the fundamentals of good interest in russia is there and although there was a telling off in the second half which may be for a variety of reasons and probably to do with western european sentiment largely there's no reason to suppose that the that that trajectory wouldn't continue this year once as others have said the political stability position becomes clearer ok we'll talk about political stability a little bit later simon i mean when you look at the emerging market world where do you put russia's top bottom in the middle. well i mean russia's northern ireland i mean it is without well within the globe the global economic sphere and should the rest of the world i mean you mentioned europe take a tanking russia washer will be severely affected russia is unique in. the global

markets perceive it to be. have a much more of a corporate governance discount it's often the political risk is of often seen to be huge whereas i fundamentally agree with ben you know the the opportunities for russia are quite large i mean we see fundamentals giving to a pointer to a large cyclical rebound ok out of him if we were to look at you know sectors and companies what sectors do you think investors are most interested in this year in the equity market and i know there's a lot of issues like oil prices and things like i've been a bit taken in consideration all these issues what sectors are attractive well preferred these are sectors that are oriented on the mastic demand so first of all this is telecommunications this is consumer cyclical so this is we are more neutral on banks. where positive funds are going to cations are up then what about you well looking across what everyone's saying for this year is very much going to be

a year of two halves and in the beginning of the year while europe deals with its problems all the banks are recommending defensive stocks you know things like that are not affected by crisis like in a consumer what have you and then the second half of the year should be when we sense go forward you know go back to the fundamentals and then people are talking about value stocks growth stocks things like spare bank. real estate companies that should do well as the economy picks up but more importantly as the sentiment you know as this fear this is dogging everything at the moment starts to fade so you see an easter is you know rush of market is extremely seasonal so typically around easter there's a switch when the new money comes in the new allocations come in and the anime should pick up from that point and i think everyone will be switching but it will also be. the point we'll see fresh money coming in from outside the camp david what do you think about that i'll actually came across the same thing everyone's looking at this year is to have a wait and see first half second half should be

a lot more growth what you think about that i think the wait and see thing is an obvious factor for this year because of the because of the environment we're in i think that the consumer market is i think widely recognized as being the big opportunity there is consumer debt inflation is is very very steady coming down so i think that the consumer market is going to be the main opportunity . ok ok so i mean i mean it when you look at what's going on here i mean it's talking about the domestic story here are you just as confident about that i mean again all things being equal we don't when we look at the eurozone we look at the problems with the u.s. economy and we also have an election in the united states well that i mean the great thing is i mean the election cycles all over the world we've got us we have china or we have russia here domestically i mean one of the things that i think we are overlooking is russia has the largest loan growth across across any country we have spare bank with our returns on equity that are phenomenal in comparison with

not just russian russian competitors but international competitors so sectors i mean there are some really exciting sectors to to invest in the short term as well as over the over the over the whole year and from from a from a wait and see perspective i think we have not overlooked the iranian oil situation and obviously with any spike in oil prices is only beneficial to the russian market and as we've seen we had severe outflows of capital last year. have been in flows of capital into gems recently but russia as our underperformed in that of the flows have not been as large as they should have been on a pro rata basis you know it's interesting so when you when you would jump in there because i have to say that i was going to ask everybody no oil price what does that have to do with russia prospects for this year go ahead i mean david mentioned before that there's a prospect of a crash in europe which would bring oil prices down which would hurt russia but i think the chances of an oil spike are also quite high i mean you've got unrest in nigeria you've got a growing tension in the middle east in the persian gulf and if that gets worse

then it's going to send oil the other way i mean it remains huge on having said that the oil demand continues to rise although it's going to be relatively flat we're at about ninety million barrels a day but although you see demand in europe is already falling from forty to about thirty five but it's being compensated by the new world where they're up to you know to forty five to fifty already and so the new world has to overtake and at the . at the day this crisis is a european crisis in other words the emerging markets are continuing to grow there we're continuing to consume more and more oil and this will give support to the price of this in areas where oil goes to sixty seventy dollars i don't see it i mean i can see. saudi arabia probably won't let that happen oh they're going to break even my grocery bill at least eighty dollars and so i mean that puts a fairly sort of on it so we know it's going to affect the market there is some downside but it's not a very big drop where is the upside is houston i don't know what about oil prices i

mean you tend to give a very good amount i would say middle case where we know we have an oil spike that would have a drop in price here but i mean what prices russia needs to keep its equity markets point well for us for the seer is one hundred twenty dollars per barrel good that's high here that's the pretty high and the reason why we expect the i to fall on one hand you're completely right but. there are lots of positive signs from the coming from the china and other countries they continue to grow pretty fast however the the reason why we think that the growth rate of the market could not be that higher as could be expected is that we have lots of issues here inside the country first of all if the european union is the largest trading partner of russia so any kind of problems there will definitely lead to issues in the local markets on one hand on the other hand what we see here is that the growth rate in the oil does not

automatically mean growth rate of walk all markets because for instance in two thousand and eleven we saw a pretty huge of care with all of the counted eighty four and plus billion dollars so this is one of the highest numbers we saw ever in this country and this special this is one of the more than comparable with what we saw in tucson eight in the well it's very interesting david if i can go to you i mean is the oil price issue for russia's equities an economy in general overrated or under rated. i think there's a i don't think there was a direct connection between islam is obviously very important for us in g.d.p. because it mainly accounts for that. i think that it did i wouldn't think it was a major impact on the stock prices in general it is a major factor for russia russia's g.d.p. which is largely linked to that of i think there's general confidence in the in the price in the oil price. ok so i mean i think i think it's interesting because i get i going back to what ben said i mean he's kind of even it out when we look at the

risk around the world where oil prices but because of growing demand it's good it balances out more or less right now it's what they think the oil issue should be really kind of lowered is a level issue of importance when we look at russian equities for this year well i mean obviously we have. russian government trying to diversify away from oil and gas i think when the rest of the world looks at russia they automatically lead to the oil price and it's that perception of russia being our oil and gas cut country that now if for all prices declining then there's a there's a lack of confidence in investing into into russia which need them we need to move away from that obviously you know we've seen the rise of the russian consumer and the russian consuming comparison with their brazil india or or china spends huge amount per person i mean the average g.d.p. consumption is over eleven thousand dollars here now whereas china china india it's far below that level when you would jump in there two points we should remember the

russian stock market tends to track the oil price fairly closely and we're in a unique position here for the first time that the stock market is trailing behind the oil price in other words the implies the price of oil something around sixty dollars in other words stocks are priced in a huge crash in europe already sort of oil prices for it's already priced in which means is that reality closes between the price of play we're going to continue our discussion of russian equities after a short break we'll continue stay with r.t. . discovery. communicate with you want to. test yourself and become free.

see what nature can give you. would be so much brighter if you. sung from songs to pressure. star totty dot com. welcome back to on the money on peter all about what's continue our discussion on the outlook of russian equities in two thousand and twelve but first let's have an overview of the russian market. analysts erupted into about the future moved under

russian equity markets experts predict that the main economic indicators will reach all time highs as the markets get back on track for steady growth in two thousand and twelve however not everything is raese for the russian market after the recent protests on the back of the parliamentary election some investors pulled an estimated eighty billion dollars from the country that is equivalent to about ten percent of the russian markets diminished capitalization as a result they're able to nominated my six has fallen by more than ten percent and the dollar's nominated m.s.c.i. russia index has fallen by thirteen percent since the election traditionally cheap because of its reliance on oil and minerals explodes russia has grown even to. still it's equities and our fishing less than five times earnings however such low price multiples likely mean that majors so offs won't snowball and as long as international oil prices averaging roughly one hundred dollars a barrel russia will continue to find itself in

a better position than most the combination of high oil prices and rising government expenditures suggests that russian stocks could be set to rally next year. we should make the russian market convenient for equity issuers and create technologies that will make investment easy and convenient for the domestic investor in this sense the exchange should become a center of self-regulation and involvement in the establishment of financial markets together the stock market so brazil russia india and china have all the s. and p. five hundred index by more than four to one in the past decade and their economies have grown four times faster than america's and stop contras to russia and the other breaks the u.s. and european economies are presumably headed for another year of stock market volatility high unemployment banking industry up evil and we causing greater that. could result in profile of us once in places like russia because of difficulties

for us united states and europe clearly doesn't twelve is likely to be very careful will be ready for that because the going to be a lot of the economic but also political certainty in both e.u. and states are ready to look for us in their states or france or other places is one of the few fully functional economies left in europe russia is poised to see foreign investors eagerly jump in the balance on the stock markets make us pay tilted in favor of the leading developing countries and should attract more investors to russia the country's economy is therefore expected to grow at a more trick pace their can all make up swing which in some three and a half to four percent in two thousand and twelve and then you do. on the money team. ok scott and i'd like to go to you back to you one of the things we talked about in the first part of the program is the reliance on the price but what about the issue of china and what how much is russian erik was going to move one

way or another depending on economic performance in china this year well again it falls into the performance of all the brics i mean if china performs well then the whole perceived nature of investing in emerging markets becomes more acceptable obviously china is having it having has a. new government forming in china has had a slowdown but we know we've had a slowdown from over nine percent to just under nine percent obviously the people complain about that ok and it's actually going i'm sure our profit friends in europe would be leaping all over night like nearly nine percent so yeah i mean is it is it a slowdown in china i mean that you know it's nine percent is just outrageous and not just china we see greater china countries as well experiencing six seven percent growth levels so in that context if russia grows at three and a half four percent that's an under-performance it's something that you know the political elite within within russia need to address that's very interesting if i go go back to you david do you think russia's economy is underperforming and if it

is what needs to be done to change it. the russian economy seems to form performing reasonably well i think one of the things which is probably affecting confidence in russia is is the significance band i mean there's been a huge expansion of the budget in the lead up to the call it lead up to elections maybe this is all going to be paid for and therefore i suspect there's probably a wait and see to see how the how the but it's going to be financed there's been a significant imposition of employment tax and i think we'll wait to see how that affects business in russia whether it be some form of restructuring before we go forward. so i think i mean the economy seems to be quite well set as as the as the report said it's better than western economies and therefore there's plenty of opportunity but there are some issues which i think that people are waiting to see how it's going to be addressed by the administration at the moment is not very clear how they will be ok let's talk politics here ben what do you think the new

duma ok. more contentious is certainly not going to be the same it is certainly not the same duma that we had before with united russia now there's a little bit more contention in there of more competition is that good or bad for equities. it's good we need a discussion i mean the trouble with having you know political power concentrated in the hands of a few people who stay there forever is that you are so fire the system and then it becomes increasingly inefficient so to shake things up a bit is important we've always had a debate in russia between the liberal camp from st petersburg and the sort of the key you know the origin of nicky from the old system and now that's been his touche allies a bit more but nevertheless you know we still exist within this managed democracy i mean we've taken a small step towards greater democracy but we're sort of stepha yes i think so i mean any any increase in debate is a good thing i mean the critics would argue with justification that we should go a lot faster in that direction and i think with the presidential elections coming

up you know last year everyone was assuming putin was going to sweep in the first round i think we'll see much more of a debate this time i think we'll see two rounds in the election and again it'll be another step forward if you investors like that is it they see more debate you know they get it's very interesting it is counter-intuitive isn't it they do they would prefer not to have that you know it's very good it's good for society but not necessarily good for business in the long term it's good because you get progress and growth in the short term increases the unknowns i mean you have to realize and remember that in a sense putin's we've had twelve years of a political mill pond you know it's just been absolutely flat nothing's stability no debate as an investor that's very easy to work in so much as you just look at endings and growth and now you're going to shake things up and things could change then the uncertainties have increased and so in the short. unsettled term what about you went political risk is this is one of the things that western media will talk about and not necessarily business media but news media in looking at russia i mean political risk good bad in the middle does it matter well in fact i think the

political risk question is not good at the moment because we have lots of things to . to be done and on one hand we need some change but within the chain. israel is not by only seasons but also but politicians are also authorities as well on the other hand any kind of a release in terms of. certainty is their family will be negative because of that will we have no at the moment we don't see any kind of alternative we're working out of time as you look at the aerating some of the top of the of the most important political ads the reading of we can is about fifty percent or so who can be instead of like sukarno he has political reading of the less than fifteen percent and are devoid of even less so who can who can we instill in third of right now that's a question so in case if we want to the economy to continue to work well and investors to be more or less pretty sure of what was going on in the country what

we see is of more political stability in it interesting so i mean if i go to you i think it's interesting that maybe at this point you know the political risk is higher than we've seen over the last twelve years but that shows a movement forward in shaking up the works as ben pointed out here and there in the in the end that's a net positive because you see a system that is reacting to social attitudes i mean absolutely i mean the recent protests there are the growing protests on the streets of moscow are definitely beneficial beneficial to register and democracy but beneficial to the perception of russia around the world what i'd like to see is that the the protest movement moved within the duma so we were having a lot of positive words come out of the duma from various parties but we actually we haven't seen any any real action and you know there are a lot of things that can be moved forward and it's not just within the political parties but we need to see that move into legislation we need to see corporations adopting a just a different attitude as well in many respects interesting david what do you think

about that the bar the level of political risk i mean is that in the law in the longer term we think this is a positive development it's happening in this country right now i was very positive i think it's very good news actually and i think there's always. western sentiment is that is always a different thing from what actually happens on the ground and i think that westerners investors are looking with a certain amount about prevention of what about what's going on in russia but it's largely based on what they see on television screens i mean this isn't the protest movement isn't isn't a sudden sort of. change of heart amongst the russian population has been protested in a consistent development process in the protests in the country over the last number of years it's just been rather more kind of human rights based on what's happening now is a more sort of person although in a more frustrated expression of people's feelings is not as if the opposition wasn't there before and i think that what we're going to see what we are seeing is actually the kremlin being more responsive to that i think that they will be concerned to try and address. the evils which is which are consistently talked

about in the russian and in russian political establishment and i think that's a very good thing i think actually business looking at a political situation which is inevitably going to be stable for the next few years i think we know who's going to be the next president but at the same time with an articulated force asking for more parliamentary democracy more of a discussion more responsiveness more of. a willingness to address the issues which align behind the very good fundamentals to make sure the fundamentals remain good and sound i think is extremely good and i think once we get through that this period of of of uncertainty and wait and see i think it's going very good for the russian economy because i think investors will get confidence then with the last word go ahead i think we should emphasize that there's no chance of a russian spring in the style of north africa i mean the you had a large population twenty five percent of the population under twenty five who are unemployed and poor russia's revolution such as it is the middle class people are

older and ironically the people have benefited from this and it's not borne out of anger is born out of frustration with bureaucracy and corruption and they want more accountability but they don't necessarily want to change the government or any ok i want to take my guess. hear and thanks aware of us for watching us here on in the money see you next time and stay with our team.

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download the official t. application two on the phone only pulled touch from the i.q. exams to. watch on t.v. life on the go. video on demand. is mine broadcasts and on s.s. feeds. russell slams the new u.n. draft resolution on syria as an acceptable saying it's targeting regime change and paves the way for possible foreign intervention. protesters in poland down to continue fighting the international answer web piracy act they say brings internet censorship under the guise of protecting copyright. and yet another blow to the struggling euro zone as the credit ratings of five nations are caught despite the crisis tackling optimism at the world economic forum in to have

a. beer with r t live from moscow words five pm great to have you with us our top story this hour russia has said no to a new u.n. resolution on syria drafted by the e.u. an arab states that warns of further action if damascus fails to comply with the document moscow says that's unacceptable but is ready to continue talks on ending the syrian crisis were important i has been following the latest round at the u.n. security council our european arab draft resolution was circulated to the u.n. security council members in which it calls for the syrian president bashar al assad to transfer power to his deputy while a unity government is formed.