Global events and Russian equities
RT:So how are these events in Japan and Libya and the broader Middle East having an effect on Russian equities?EN: "They help, they definitely help the equities to increase in price, they attract additional attention to the Russian market, because they force the major driving factor – oil price.OK not all but many of the natural resources are going up in price because of these events.That is exactly which is positive in this story for Russia.Although I wouldn’t call this is a long term effect – this is mostly the speculative spike.This is a very tricky situation I would say – yes there is increased demand but mostly it comes from speculative investors who will go out as soon as the situation will resolve."RT: Now as these situations resolve, particularly the political upheavals in the Middle East and North Africa, do you expect to see Russian equities doing what?EN: "There will be a short term correction.In oil, I don’t even doubt that this will not be a deep decrease but be a correction of 5 to10 barrels at least.This is exactly which will stop growth in Russian markets, hopefully will create a certain decrease in, Russian equity market may decrease somehow." RT: Do you think that would be a cue to sell Russian equities?EN: "Speculatively yes, but if we speak about longer term targets, I am not saying that oil will go down significantly.The problem here is that, OK, to some countries this is a problem, to some countries is a benefit.The situation is that most natural resources will be increasing in price.That is the very likely situation for the nearest years actually." RT: If oil falls back to the $80 to $90 dollar range, what sort of correction would you expect in Russian equities?EN: "I really don’t believe it.It’s possible, but current events – I myself did have forecasts for 2011 of $92/bbl for Urals an average for the whole of 2011.But this forecast did not include the events in Japan, the events in Libya, and potential consequences of them.So in total I would say that this is very unlikely that oil goes down to that level, but if it happens we may see the level of Russian indexes of end 2010 – that’s before the repricing of Russian equities and oil in fact."RT: Will the higher demand for commodities from Japan for its reconstruction have a long term impact on Russia?EN: "I would say this will affect Russia two fold.If we speak about commodities, if Japanese government and Japanese nation will be able to reconstruct and be able to boost actually, to boost demand for natural resources, this will help natural resources.But what is happening with atomic energy, actually this is a negative situation for Russia, because we try to position a significant position on atomic energy resources.And whatever reconstruction will be looks like that this may help us with oil, but this may not help us with our potential future energy bets which we are trying to put into play now, because the attitude towards atomic energy has changed drastically within these few weeks."RT: Now what would you say is the overall situation with Russian fundamentals? Strong, weak, somewhere in the middle? How do you classify them?EN: "I would say, taking into account the current situation, I don’t even mean Japan in fact, other words speaking about Japan, Libya and other stuff I would see these effects on oil mostly as speculative or at least medium term as reconstruction demand.I don’t really see rapid growth in Japan because of the need of reconstruction, because most of the infrastructure, the manufacturing industry which are affected now, they were nearly perfect if we take current standards.It is really difficult to improve them significantly, say to create a real economic boost.That’s how I see the situation, particularly taking into account increasing wealth of developing nations.Still growing world economy, emerging markets, it is very likely that natural resources will be increasing in price and that is exactly what is Russian fundamentals now.So oil is moving in the right direction – will be increasing – maybe not quickly but still this will be supporting Russian economy in terms of inflow of money, financial position in terms of potential development, if we manage to use it properly.So that’s exactly what the question where we should answer – to improve and make anything of this situation."