What is the current financial situation in Russia?
We asked Kim Waddoup, the CEO of the aiGroup what were his thoughts on the current financial situation in Russia.
How is the current economy coping in Russia?
There are mixed reports on what is happening with the economy. The main news is that Putin will once again stand for election as President. It is a foregone conclusion that will probably bring stability and growth. Unemployment is down, inflation is under control and salaries are increasing. The real situation in Russia is so hard to fully appreciate as the size of the grey economy is vast!
The Ruble has come under pressure recently losing to both the Dollar and the Euro. Whilst many bank in Russia in Rubles most people also bank offshore in stronger currencies.
For the man in the street, there does not appear to be any change. The streets are full of cars, restaurants are full and retail spending continues to increase. It is important to remember that there is little household debt in Russia and less that 8% hold mortgages.
Is the Russian government concerned about the Euro meltdown?
Naturally they are concerned, however the big story remains Putin's return and this is dominating the news. Whilst the Ruble has lost recently to the US$ and the Euro, manufacturing output in Russia has increased. Whilst some imported goods may be more expensive, Russian goods will fill their place. Russia recorded a record grain harvest this year and this is vitally important to the economy cushioning the effects of lower oil prices.
Why are Russians investing abroad rather than in the own domestic markets?
Several reasons. Property prices in Russia have generally remained strong and many have increased. Many Russians question the excessive costs of buying here especially as they can buy so much more abroad for the same price. There is also the question of stability and security, many Russians don’t trust local laws and there are cases of companies experiencing hostile takeovers with virtual immunity, so it is safer to buy abroad and be protected by long established laws. Russians are also playing catch-up! They travel for business and see what other business men own abroad, they are eager to be treated as equals, hence an increasing trend to buy property abroad.
How is the Russian property market?
The Russian domestic property market is buoyant. There was a great shortage of quality apartment in the major cities and many developments are now coming on line. Prices have generally increased due to the high demand. The last years have seen some sensibility coming in to the market which has avoided a classic bubble situation.
Why don’t they invest in Russian stock market?
Many reasons. The Russian stock market is dominated by the large players and smaller investors generally have few rights or security. The Russian stock market is also relatively new and many do not understand the system. It is also on-shore, increasing the risk in a Russians mind.
What do you think will be the emerging markets in the next twelve months where Russians will invest?
There is a pent-up desire to buy abroad and for the Russian investor, the world is their oyster. The market is relatively new and therefore quite un-coordinated. The leading destinations are currently Bulgaria, Spain, Montenegro and Turkey, however we are also seeing interest in USA and South America. Many are also looking towards Asia, recognizing the stable pricing, sensible costs of living and the high enjoyment factor.