Is it worth investing in the Russian economy in the second half of 2021?

A survey of German companies operating in Russia showed that they expect an improvement in the economic situation in the country in the second half of 2021. This is the opinion of more than half of the respondents in the study of the Russian-German Chamber of Commerce. Only 12% believe that the changes will be negative or somewhat negative.

Almost half of German companies are planning to invest several billion euros in the country in the next 12 months. Moreover, many are ready to increase the number of their employees in Russia.

This study was conducted in May and June 2021 among one thousand companies - members of the chamber. Its authors note that this year the results of the survey were the most positive in the past few years. In total, there are about four thousand German companies operating in Russia.

The first quarter of 2021 still showed a minus, but a decline of 0.7% is already better than the preliminary estimates of the Bloomberg consensus forecast, where minus 1% was expected. The recovery of the Russian economy so far has been ahead of market expectations.

The European Commission announced in mid-May that it expects the Russian economy to grow by 2.7% in the second half of the year. By the end of June, forecasts for Russian GDP sound even more optimistic.

Russia has learned to cope with the pandemic without stopping business and isolating citizens, which cannot be said about other countries where there were many more lockdowns, and they were tougher than in Russia.

It is precisely the flexible approach to the pandemic that, in all likelihood, is now the key factor in the attractiveness of the local economy for German investors. They are convinced that Russian business will withstand the third and fourth waves of any virus strain.

Among the risks for the recovery of the Russian economy are the trade war between America and China, as well as a sharp increase in rates in the United States.

Finally, the sanctions risks have not gone anywhere, and it is no longer entirely clear when they will go away. Sanctions are perhaps the main risk factor: in the first half of the year, the measures were very light and local, they did not affect economic processes, and therefore the ruble did not react to this news as sharply as expected.

If Russian banks nevertheless disconnect from SWIFT, prohibit the purchase of Russian shares not only during the initial placement of OFZs, but also in the secondary market, then it will be much more difficult to recover from positive scenarios.

In this case, the investment attractiveness of Russian stocks will decline, and the ruble will weaken.

As for the "reverse investment", the situation is as follows. In the first quarter of 2021, private investors in Russia sharply increased their investments in foreign equities. They grew by 220 billion rubles to 836 billion. At the same time, over the entire last year, Russians invested 346 billion rubles in the shares of non-resident companies.

Moreover, the St. Petersburg Stock Exchange, Russia's largest platform for international stocks' trading, plans to create new indices for shares of foreign companies.