Uralsib Capital as Partner and Active Member of 8th Russian Bond Congress
Uralsib Capital became a partner and active participant in the 8th Russian Bond Congress organized by Cbonds Information Agency, which took place in St Petersburg on December 9-10. Alexey Devyatov, chief economist of Uralsib Capital, and Dmitry Dudkin, head of fixed income research, spoke during the congress. Uralsib Capital took third prize at the Cbonds Awards based on votes from market professional members for “the best sales at the bond market”.
Mr. Devyatov spoke on the main trends in the Russian economy in 2010-2011 and expected trends until 2020. He analyzed the economic situation and defined the key features of the slowdown in economic growth 3Q10, the stagnation of exports and imports, a slow recovery in industry crediting as well as a recovery in capital investment and consumer demand.
In general, noted Mr. Devyatov, the growth rate of economy in 2010 was rather high. He also specified the main factors that will influence the development of the Russian economy over the coming ten years: reduction of the probability of a double dip, revival of capital inflows to Russia, the adoption by the government of economy-friendly measures (at the same time, the government will not adopt stimulating fiscal and monetary policy). Mr. Devyatov further underscored that the long-term growth of the economy will be under the adverse impact of Russia’s progressive demographic decline.
Mr. Devyatov also named risk factors for 2010 and 2011: a slowdown in global economic growth, the accumulation of corporate debt, a growth in the state expenses prior to the elections of 2012 and high inflation risks. Regarding the long-term forecast for Russian economic development, Mr. Devyatov stressed that the growth will be essentially based on internal sources provided that the oil price and capital flows are relatively moderate.
Mr. Dudkin participated in the panel discussion called Bond Market Opportunities and Investment Ideas with a report named 2011 – From Interest Rates to Spread. According to Mr. Dudkin, the response of the US and European monetary authorities to the financial crisis was dramatically different: while the US “is issuing more money”, the European financial institutions tend to implement more restrained budget policy. Milder monetary policy in the US will cause the raised yield of treasury bonds and lower dollar exchange rates. In particular, the yield on US 10-year treasury bonds in 2011 is expected to be 4.5% per annum.
Mr. Dudkin thinks that Russian foreign debt will remain comparatively low as our country retains one of the best rates in the portfolio of the developing countries. Nevertheless, from the point of absolute terms, the anticipated rise of the US government bonds profitability is expected to cause negative results for long-term Russian Eurobonds.
Mr. Dudkin said that the risk of inflation rate growth is expected to force the Central Bank of the Russian Federation to raise the refinancing rate (up to 9%, as Uralsib’s forecast goes). It will make short-term rates in rubles higher but their increase is not likely to be significant, and the profitability of long-term bonds in rubles is unlikely to change considerably. For example, the profitability of five-year federal bonds is expected to reach 7% by the end of 2011. In general, Mr. Dudkin summarized, bonds on the Russian debt market are not cheap any more due to high interest rates, so the bulk of income in 2011 will come from the credit spread.
December 10, 2010
