« Surprising Russia »

And given the rapidly deteriorating outlook for world economic growth and increasing fears that the European debt crisis will worsen, a further correction in stock markets is likely. At first sight, therefore, Russia does not appear to be an obvious investment opportunity.

Nevertheless, relative to other emerging markets, Russia could provide strong investment returns in the coming quarters. Growth rates are rapidly slowing in virtually all of the world’s emerging economies, even in relatively solid countries like India and China. Russia is a positive exception in this regard. Its growth rate will most likely be higher in the second half of the year than it was in the first.

This favourable situation is mainly due to the stringent economic policy that the Russian authorities have implemented to limit inflationary pressure. Cautious expenditure in the first half of the year has also given the government greater scope to spend more in the quarters leading up to the parliamentary elections of December 2011 and the presidential election of March 2012. All things considered, growth in the second half of this year will probably exceed 4%, approximately half a percentage point higher than in the first half, whereas growth in other emerging markets will slow by an average of at least half a percentage point in the same period.

In a world in which economic growth is becoming increasingly scarcer, the Russian growth momentum is a major argument for a positive assessment of its stock market, all the more so because of favourable valuations: with a price/earnings ratio of five, Russia is more than 40% cheaper than the average of all emerging markets combined. In addition, the quality of economic policy has clearly improved since the crisis of 2008. As a result, growth is less volatile and inflation has dropped. From 10% in January 2011, inflation fell to 8% by August of the same year and is expected to be 5% for the first half of 2012. The Russian rate of inflation has never been as low since the collapse of the Soviet Union in 1991.

Given the crucial importance of oil exports to both the real economy and the stock market, it is of course important that the price of oil does not drop sharply in the coming period. The bleaker outlook for world economic growth does not help.

Nevertheless, in a world in which major central banks are increasingly driven to printing more money and emerging markets are increasingly accounting for world economic growth, prices of commodities and oil may turn out to be a positive surprise.