MOSCOW. Feb 15 (Interfax) - Investors have no doubt about who will win the upcoming presidential elections - the main question for them is how transparent the elections will be and whether they will provoke new mass protests and also what will the first steps of the new head of state be, analysts polled by analysts said.
In which round Vladimir Putin wins the election is a side issue for investors, said Vladimir Tikhomirov of Otkritie Capital.
"A win for Putin will not be a surprise for investors, whether it is in the first or second round. The expectation is that in one or two rounds, Putin will come to power and start to carry out reforms, to make serious team changes, including in the government, and that protests will gradually fade away. If this scenario does not play out for whatever reason, say investors do not see significant progress toward reforms, new respected people in the administration and government, then relations towards Russia will remain rather contained. Nobody is considering a growing revolutionary movement or the election of opposition leaders as a basic scenario," Tikhomirov said.
The legitimacy of the upcoming elections is the main thing for the market, said Vladimir Pantyushin of Barclays Capital Russia and the CIS.
"How clean the elections are is a very important issue. But inviting a large number of observers, the installation of transparent ballot boxes and other such measures will help make elections fairer. The authorities will not repeat the mistakes made in December. I think a win in the first or second round will provide many factors for analysis, while leaving many questions open," the Barclays Capital analyst said.
Two rounds of elections are preferable for investors as there will be fewer allegations and use of administrative resources, Tikhomirov said. But even with one round there is a chance that such allegations will be weak, if resources are well used, including with the use of web cameras.
"Probably, two rounds will be better for most investors as that would show that a political struggle is really taking place and votes are more evenly distributed. If the elections require just one round and there are accusations of vote rigging, this will not change how investors view the Russian political system in a major way. They already consider it rather centralized with the ability to influence and impact the vote counting result in elections, so this is unlikely to be anything new for them," Tikhomirov said.
Political risks grew with the protest movements and "swings" in the ruling elite, but for investors these risks were manageable and did not pose a major threat, while the global situation and high oil prices support the stock markets in Russia. But if there is no clear movement toward reform in May-June, that is when the selling might start, the analyst said.
Tikhomirov expects a change in the capital flight trend and predicts a small influx of around $5 billion in 2012, which will mainly come after the elections.
"We believe that reforms will move after the elections, even the non-popular ones. There will be serious changes in government, the political system will stabilize and there is a chance that the capital flight trend will turn around in the second half," he said.
A win for Putin in the second round of presidential elections will be fraught with political uncertainty, said Natalia Orlova of Alfa Bank (RTS: ALFB).
"In the eyes of foreign investors a win for Putin in the first round will indicate a high level of support and show that political risks in the country are fairly low. If he wins in the second round, this, in contrast to the previous presidential elections he took part in, will show that his popularity dropped. That is why the first or second round is like a test of how much faith there is in Putin and the current regime," Orlova said.
The main positive result of the past protests is that there cannot be a high level of falsification, considering the great interest there is in the presidential race and so it can hardly be considered illegitimate, she said.
However, Orlova does expect the protests to continue after the elections.
"The number of participants in the last opposition protests in Moscow was unexpectedly higher than at the previous two protests, despite much more severe weather conditions, indicating that the protest mood is not subsiding. In addition, the rallies grew at a regional level. This means there is a risk that protests will continue after the elections and this will pose a threat for the Russian capital account," she said.
Capital flight will continue in 2012 and will reach $40 billion, Orlova predicts.
Analysts from Citi also believe the risk of protests continuing after the presidential elections will have a negative impact on the appeal of Russian shares.
After the December opposition rallies, the risk premium of investing in Russian shares rose significantly due to increased political risks in the country and the fact that protests are likely to continue after the March elections means that risk premium will not be reduced in the foreseeable future, Citi analysts said.
"The fact that around 100,000 people gathered at the last opposition rally, despite the cold weather, indicates that opposition is not being reduced. This increases the likelihood that protests will continue after the presidential elections and means political uncertainty in Russia will continue to have a negative impact on Russian share valuations," the analysts said.
Increased political uncertainty together with other economic reasons will prevent a turnaround in the situation with capital flight, which will continue this year and reach around $50 billion, Citi analysts said.
MOSCOW. Feb 15 (Interfax) - Investors have no doubt about who will win the upcoming presidential elections - the main question for them is how transparent the elections will be and whether they will provoke new mass protests and also what will the first steps of the new head of state be, analysts polled by analysts said.
In which round Vladimir Putin wins the election is a side issue for investors, said Vladimir Tikhomirov of Otkritie Capital.
"A win for Putin will not be a surprise for investors, whether it is in the first or second round. The expectation is that in one or two rounds, Putin will come to power and start to carry out reforms, to make serious team changes, including in the government, and that protests will gradually fade away. If this scenario does not play out for whatever reason, say investors do not see significant progress toward reforms, new respected people in the administration and government, then relations towards Russia will remain rather contained. Nobody is considering a growing revolutionary movement or the election of opposition leaders as a basic scenario," Tikhomirov said.
The legitimacy of the upcoming elections is the main thing for the market, said Vladimir Pantyushin of Barclays Capital Russia and the CIS.
"How clean the elections are is a very important issue. But inviting a large number of observers, the installation of transparent ballot boxes and other such measures will help make elections fairer. The authorities will not repeat the mistakes made in December. I think a win in the first or second round will provide many factors for analysis, while leaving many questions open," the Barclays Capital analyst said.
Two rounds of elections are preferable for investors as there will be fewer allegations and use of administrative resources, Tikhomirov said. But even with one round there is a chance that such allegations will be weak, if resources are well used, including with the use of web cameras.
"Probably, two rounds will be better for most investors as that would show that a political struggle is really taking place and votes are more evenly distributed. If the elections require just one round and there are accusations of vote rigging, this will not change how investors view the Russian political system in a major way. They already consider it rather centralized with the ability to influence and impact the vote counting result in elections, so this is unlikely to be anything new for them," Tikhomirov said.
Political risks grew with the protest movements and "swings" in the ruling elite, but for investors these risks were manageable and did not pose a major threat, while the global situation and high oil prices support the stock markets in Russia. But if there is no clear movement toward reform in May-June, that is when the selling might start, the analyst said.
Tikhomirov expects a change in the capital flight trend and predicts a small influx of around $5 billion in 2012, which will mainly come after the elections.
"We believe that reforms will move after the elections, even the non-popular ones. There will be serious changes in government, the political system will stabilize and there is a chance that the capital flight trend will turn around in the second half," he said.
A win for Putin in the second round of presidential elections will be fraught with political uncertainty, said Natalia Orlova of Alfa Bank (RTS: ALFB).
"In the eyes of foreign investors a win for Putin in the first round will indicate a high level of support and show that political risks in the country are fairly low. If he wins in the second round, this, in contrast to the previous presidential elections he took part in, will show that his popularity dropped. That is why the first or second round is like a test of how much faith there is in Putin and the current regime," Orlova said.
The main positive result of the past protests is that there cannot be a high level of falsification, considering the great interest there is in the presidential race and so it can hardly be considered illegitimate, she said.
However, Orlova does expect the protests to continue after the elections.
"The number of participants in the last opposition protests in Moscow was unexpectedly higher than at the previous two protests, despite much more severe weather conditions, indicating that the protest mood is not subsiding. In addition, the rallies grew at a regional level. This means there is a risk that protests will continue after the elections and this will pose a threat for the Russian capital account," she said.
Capital flight will continue in 2012 and will reach $40 billion, Orlova predicts.
Analysts from Citi also believe the risk of protests continuing after the presidential elections will have a negative impact on the appeal of Russian shares.
After the December opposition rallies, the risk premium of investing in Russian shares rose significantly due to increased political risks in the country and the fact that protests are likely to continue after the March elections means that risk premium will not be reduced in the foreseeable future, Citi analysts said.
"The fact that around 100,000 people gathered at the last opposition rally, despite the cold weather, indicates that opposition is not being reduced. This increases the likelihood that protests will continue after the presidential elections and means political uncertainty in Russia will continue to have a negative impact on Russian share valuations," the analysts said.
Increased political uncertainty together with other economic reasons will prevent a turnaround in the situation with capital flight, which will continue this year and reach around $50 billion, Citi analysts said.