Asian equities have, this morning, extended last week’s rally as optimism continues to rise that the world is now on a more secure recovery path. Whether that optimism is valid or misplaced will be proven over the next three weeks. Only then will we know if markets will have a strong burst into the year-end or limp across the finishing line.

By Chris Weafer

It is nothing new to say that the investment case for Russia is mainly predicated on global economic trends. That has been the case all year. But, two domestic items have recently become very important and raised at least the perception of higher investment risk in Russia. Thus justifying, for many investors, the very cheap discount that, on average, equities and the ruble are trading relative to EM peers. Those two events are the growth in inflation and the plan by Transneft to takeover Novorossiisk Seaport. If the former is not contained and the latter is not handled in a way that protects the rights of minority investors, then the perception of higher risk will be justified and damaging. Already, over the past five days the IOB Index of Russian GDRs fell 2.5% while the MECI EM Index gained 2.3%.