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New Europe Weekly
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Uncertainties building up in Russia
Fri, Jun 19 2009, 12:47 GMT
by Lars Christensen
Russian financial markets have stabilised in the last four months driven by renewed risk appetite in the midst of hopes of green shoots appearing in the global and Russian economies. This led to a doubling of the value of Russian equity markets and pushed the rouble around 10% stronger against the dual currency basket as oil prices advanced. Interest rates fell steeply too as the liquidity situation improved.
However, the economic outlook is uncertain, which increases financial risks. Data this week showed that Russian industrial output dropped 17.1% y/y in May, setting a new record low. Wage arrears are now affecting more than half a million workers and unemployment continues to rise. With high inflation and poor labour market dynamics the demand side of the economy has still not stabilised. Hence the outlook is rather uncertain, also taking into account large financial risks and high external repayments this year. We expect that Russian GDP to drop up to 8% in 2009, while staying relatively flat in 2010 (+ 0.5% y/y).
The economic recovery will only be gradual and if oil prices drop significantly the rouble will come under immediate pressure. A move down in oil prices towards USD 50/barrel would push the rouble towards the weak level of the trading band (basket/RUB 41) – 8-9% weaker than today’s level. Based on an strong rouble and lower interest rates we recommend hedging all short to medium term rouble risks.
Published on Fri, Jun 19 2009, 12:50 GMT
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This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.Related reports
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