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24 Jan, 2008 05:55

Russia set to weather economic downturn

Investment bank Merrill Lynch believes Russia is a relatively safe haven, saying the country is well insulated against the predicted downturn. The US-based multinational says the main reason is that Russia's energy sector is so strong. But other market pl

Few doubt the U.S. economy is in the early stages of a recession and it hasn't taken long for the emerging markets to respond.

Recent sell-offs on the Asian and Russian stock markets suggest that fast-growing economies will be the first to suffer.

Opening its new Moscow office, Merrill Lynch CEO John Thain says Russia will hold on to its growth longer than other BRIC (Brazil, Russia, India and China) countries.

“I think Russia will do relatively better in terms of economic growth,” John Thain said.

However chief economist at Deutsche Bank Moscow, Yaroslav Lissovolik, said the energy sector may be exposed to falling oil prices.

“This is something that poses a problem to the market as a whole, because 50% of the market’s capitalization is essentially the fuel sector,” Lissovolik said.

Markets have already given up much of this year’s gains, leading foreign investors to pull their money out of Russia.
Vladimir Osakovsky, chief economist at Unicredit Aton. market, says the outflow may prove short-lived.

“Relative to the other emerging markets, Russia is actually a much more attractive destination. Therefore the situation with inflows and outflows will be much better in Russia than in other countries,” Osakovsky said.

Investors are attracted by Russia’s strong macroeconomic fundamentals.  They stand in stark contrast to those of some developed countries. Economists continue to rely on Russia and other emerging markets to at least partly offset the US economic slowdown.