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Russia’s strength should insulate it from US fallout

After a pause prompted by US-inspired volatility in the global equity markets, Russian companies have resumed new-issue activity, helped by the belief that the strong economic environment in the country will help insulate it from the effects of the fallout from the US.

Renaissance Capital, which has been at the heart of much of the recent issuance action, believes that Russia is a safe haven for investors.

"Once the global markets begin to appreciate that short-term liquidity risks do not undermine Russia’s fundamental economic strength, those investing in Russia will be glad they did," says the firm’s chief executive, Alexander Pertsovsky. "In fact, in the view of Renaissance Capital, a combination of strong global growth, looser monetary policy and high commodity prices could be a perfectly delightful storm for Russian assets."

Given that Russia has $450 billion in foreign exchange reserves and a $130 billion stabilization fund, Pertsovsky says the country is well positioned to withstand the liquidity crunch, and adds that investors should focus on mid-term economic prospects rather than short-term volatility. "Russia’s economic growth remains strong – this year in excess of 7%. But there is a major difference going forward. While growth over the past several years has relied on high oil prices and exploding consumer demand, the real driver of growth over the next few years is going to be a domestic investment boom." Over the next decade, Russia is expected to spend almost $1 trillion to rebuild its Soviet-era infrastructure.

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