The four most dangerous words in investing are "This time it's different".
Sir John Templeton
Putin delivers clear-cut victory. Vladimir Putin's victory with a projected 64% of the vote is not far off that forecast by various opinion polls over recent weeks. This should help draw a line under the protest movement in its current form, which should be greeted with relief by investors. But the outcome is mostly priced in already, and, as expected, after a short relief bounce, there was no significant impact on equities this morning. Weaker trade across Asian markets as a result of China guiding lower economic growth this year will have more of an impact. Attention will quickly switch to who will be appointed to the key positions in the next government and how Putin can deliver on promises made during his election campaign without busting the budget or further raising the economy's dependency on the oil price.
by Patrick Armstrong
ELECTION. The last polls are published and it’s clear Putin will win on the first round. VTsIOM. FOM and Levada all agree and their numbers average out at: Putin 60-61%; Zyuganov 15%; Zhirinovskiy 8-9%; Prokhorov 7-8% and Mironov 6%. As always, any significant variation from these numbers will be cause for suspicion. I reiterate that when the final results – as the Duma ones did – correspond to long series of opinions polls from different sources then the burden of proof is on those that say the results were cooked. Really robust evidence is needed to counter the appearance of the expected. This fact ought to be apparent to the meanest intellect but for some reason is no t. I expect the customary incompetent and biased reporting from the Western media. Once again, the runners-up will not be the “liberals” so lionised by Western observers but the Communist and Zhirinovskiy nominees. The rest – however many there may be – compete for 10% to 15%. But that truth – an immutable law of Russian elections since 1991 – seems to be unable to be grasped by so many outside observers who really think that the inclusion of, say, Yavlinskiy would make some difference. Not to Putin’s vote, not to Zyuganov’s vote and not to Zhirinovskiy’s vote.
I take my hat off to Margareta Pagano, the business editor of The Independent on Sunday. Her masterful article yesterday, “City aims to take the Burberry catwalk to Russia” was a real pleasure to read. It covered TheCityUK’s thriving partnership with Moscow to develop an international financial centre, Trade Minister Lord Green’s aim to make Russia a priority, the recent roadshow by Victor Vekselberg and the Skolkova team and to top it off she interviews David Peattie, BP’s head of Russia who she quotes as saying, “the TNK partnership has been a huge success, despite its ups and downs. Since TNK-BP was launched in 2003, Russia has earned $150bn (£95bn) in taxes and duties, while BP has made $19bn in dividends – and the dividend to BP's shareholders last year was largely covered by the $3.7bn TNK cash dividend. While the spat with TNK over the failed Rosneft deal is still going through the courts, Peattie says personal relations with the three oligarchs are good: "There's never a dull moment."
She also gives prominence to our friend Danny Corrigan, who she credits with inventing the Burberry phrase. Danny who is the deputy chairman of CityUK's Russian liaison group, coined the Burberry phrase for how the City is "copying and pasting" its regulatory, legal and accountancy standards on to Moscow. The Russian capital is already the third-biggest revenue earner for the City's magic circle of lawyers and accountants after London and New York. Corrigan, who runs the roubles desk at Icap, says financial experts are tripping over themselves to do business in Moscow – BA has just upgraded its route into the city, one of its most profitable and busiest.
Why is she so refreshing to read after the hostility towards Russia of the Daily Telegraph and the Daily Mail? Could it be that her newspaper is owned by Alexander Lebedev, the Russian businessman and administered by his son and she has nothing to fear by being objective on Russia?
The cacophony of ant-Putin sentiments airing in the establishment media of the west, of which the Daily Telegraph is in the forefront closely followed by the Daily Mail, both here in London, are colouring the public’s view of Vladimir Putin, the Prime Minister of Russia and his country. Mr Putin was President of Russia from 2000 to 2008 when he stepped down in line with the constitution which limited him to two consecutive terms. His nominee and protégé Dmitry Medvedev was elected in his place and Putin became Prime Minister.
Investors more risk-averse. We see two trends in the EPFR Global fund flow data this week. The first is that investors are less keen to take risk. Investors took a step back from the EM balanced funds last week as they wait to see what will be the fallout from the Greek bailout deal. After investing over $15.6 bln into EM balanced funds since the start of the year, investors took back a very modest $154 mln (0.04% of AUM) of that in the week to Wednesday, according to the latest report from EPFR Global. Inflow into GEM balanced ETFs totaled $281 mln, which implies that flows into long-only balanced GEM funds were negative and that long-only investors were, in fact, redeeming funds and taking some profit on the news ("fact") that the Greek bailout package was approved in both Athens and Brussels. This is, however, more than likely just a pause in inflows, as ETF investors were still quite open to buying EM risk and overall inflow into ETFs, as a sum of all geographies, was still positive at $355 mln, supporting the case that risk appetite remains positive.
MSCI said that it will announce the results of its February 2012 quarterly index review on February 15 at 23:00 CET, meaning the market will react the next day. There is only a slim chance that MSCI Russia's composition will be changed in this rebalancing, with no stocks being added or deleted. Following last year's additions of MRSK Holding in November and LSR Group in May, there is now a gap between the stocks fitting MSCI requirements and stocks next on the list that can be added to MSCI Russia. The next two stocks that fit the market cap criteria are Bashneft and PhosAgro, but neither of them have sufficiently large free float to be included.
BEHIND THE DOGE'S MASK
By Chris Weafer
Concern may shift to strength in the global economy. While Greece will undoubtedly continue to grab the headlines as the new week starts, investor attention, and concern, is already shifting to the state of the global economy. It may well be a case that while the immediate threat of a Greek default is eliminated, the fact of removing the distracting Doge's Mask may only serve to reveal the Sword of Damocles threat overhanging global economic growth. That was the main reason for the downturn in Western markets and across all so-called risk assets on Friday. With so many important indicators of current economic activity due this week in the US and Europe, it is likely that the picture revealed by these reports will increasingly dominate market headlines as we move into the week.