News Capitalists Will Like - Of All Places From Russia!

Monday, December 05, 2005

Foreign debts repaid early, rising energy production, record currency reserves, household incomes up and consumers discovering the (questionable) joy of going on spending sprees while the stock market ascends to new all-time highs.
No, we are not talking about a country following the path of unfettered capitalism. These times it is oligopolistic Russia that sets the records.
In a stark contrast to US and European media, reading Russian news these days is like picking up a paper from Pleasantville.
48 hours worth of news from the Eurasian giant paint a truly rosy picture from the country that spans 9 time-zones and that is also enjoying record foreign direct investments.
The business section of Ria Novosti brings us the news that real household incomes rose 9.4% year-on-year while retirees find 8.9% more in their wallets. This comes on top of the news that unemployment has been reduced to 5.6 (6) million out of a workforce of 78 million people.
Russians know how to make use of the jump in incomes that dramatically outgrew an annual inflation rate of 10%.
According to the web edition of The Pravda consumers feel so confident of their personal economic situation that they are embarking on "shop till you drop" adventures. Citing a study from PriceWaterhouseCoopers the new trend offers extensive investment opportunities to retailers that is not limited anymore to the ever-present luxury bracket that has served the Russian financial elite since the early 1990s. A good indication that Russians move upmarket is the declining share of food in their household budgets which dropped from 55% to 39%.
Surfing to Interfax reveals still more good news.
The Russian Finance Ministry today announced that it will convert another tranche of old Soviet debts into Eurobonds earlier than anticipated. The conversion of some $500 million debt was originally planned for October 2006. Now the time-table has been fast forwarded to either this or the coming month.
Record, Records, Records
This comes at a time when the total foreign debt of the country has been reduced to $88.6 billion - or roughly 1.1% of US public debt - from $114.1 billion at the beginning of 2005. The fast payback can be attributed to higher oil revenues.
The good news do not stop here.
Russia's forex reserves have risen to a record $163.3 billion by the end of November, up 31% for the running year. The strong rise in November so far has not come from the intended doubling of the share of gold in Russia's forex reserves, announced by president Vladimir Putin last month.
In contrast to so many other countries the improvement of all these economic indicators does not come from increased government spending. The Russian federal surplus has doubled to 1.162 billion roubles in the 3rd quarter of 2005, compared with a year earlier.
All together these figures could lead to 6.1% GDP growth in 2006, the Russian central bank had said earlier, basing its forecast on a $60 oil price. This year Russia's economy is expected to drive home a growth rate of 5.5% according to IMF estimates.
The stock market has already discounted the good news. The RTS index reached a record high at 1,053 points by the end of last week and analysts see more potential.
Do I sense a global seismic shift here? Yes, I do.
UPDATE: For more information on Russian equities and macro data go to the Russian Stock Market Blog.

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