The Post-Election Business Barometer
Many Investors Want Putin to Succeed, but Could He?
Tai Adelaja - Russia Profile - russiaprofile.org - 3.6.12 - JRL 2012-42

Analysts and rating agencies in Moscow have been polishing their crystal balls to preview the year ahead after Prime Minister Vladimir Putin sought and won a convincing victory in Russia's presidential election on Sunday. While his victory has been largely expected, the common theme running through all analyst notes to investors on Monday is that Putin's re-election will foster political stability and lessen political risks ­ a top concern for investors. The only dissenting voice was Fitch Ratings', which threatened on Monday to downgrade the country's ratings unless the incoming government embarks on a fiscal tightening that significantly reduces the country's non-oil and gas fiscal deficit.

Of prime concern to investors is the wave of middle-class anti-Putin protests, which many see as continuing well after the elections. Thousands of protesters gathered in Moscow on Monday to protest presidential election results hours after the Central Election Commission reported that Putin, seeking to regain the presidency after four years as prime minister, won in the first round on Sunday. The final results of the elections are due to be announced on March 17, but Putin's inauguration will take place only on May 7. "Bearing in mind the aftermath of the parliamentary elections, the markets will anxiously monitor the scale and the mood at the [post-election] rally," analysts at VTB Capital said in a note to investors on Monday.

Other analysts believe that Putin's more-than-convincing performance at the polls would take the wind out of the sails of the protest movements. "The clear-cut victory should help draw a line under the protest movement in its current form, which should be greeted with relief by investors," said Chris Weafer, chief strategist at Troika Dialog. "But the outcome is mostly priced in already, and, as expected, after a short relief bounce there is no significant impact on equities this morning." Nevertheless, many analysts see Putin's victory as a victory for his campaign platform, which stresses the need to maintain stability. "From a purely economic perspective we think that the market will take comfort from the win as a sign of continuing stability," said Ivan Tchakarov, chief economist at Renaissance Capital, an investment bank partly owned by Mikhail Prokhorov.

With all ballots counted, Prime Minister Vladimir Putin gained 63.6 percent of the vote and his closest rival, Communist Party Leader Gennady Zyuganov, won 17.18 percent in Sunday's presidential election, the Central Election Commission reported on Monday. Billionaire businessman Mikhail Prokhorov, the owner of the New Jersey Nets NBA team, secured 7.98 percent, Liberal Democratic Party Leader Vladimir Zhirinovsky ­ 6.22 percent, and Just Russia Party Leader Sergei Mironov ­ 3.85 percent. "The election results will undoubtedly positively affect the foreign investor mood and risk appetite," said Ovanes Oganisian, a strategist at Troika Dialog. "Putin and those surrounding him will work on making the current political system more stable and support for the democratic power transitions is very important."

While dissatisfaction with Putin hinged partly on the cynical job swap with outgoing President Dmitry Medvedev, analysts said investors may count on a more congenial investment climate if Medvedev takes the prime minister's seat. Putin confirmed last week that he will appoint Medvedev as premier once he resumes the presidency. Putin has until May 21 to appoint a prime minister, according to the Russian Constitution. "The new administration does not take office until May, so there are likely to be few concrete statements on policies in the next few weeks," Clemens Grafe, chief economist at Goldman Sachs in Moscow, said in a research note. "However, any comment from Vladimir Putin on how inclusive (of the non-parliamentary opposition) he would want his future government and administration to be would be closely watched." Peter Westin, chief equity strategist at Aton brokerage, said the composition of the new government, assuming it includes liberal-minded individuals like Alexei Kudrin and Mikhail Prokhorov, could boost support for market-friendly reforms.

Pushing through such reforms may be a question of economic survival for the president-elect. Fitch Ratings warned on Monday that it would closely monitor how quickly the new government will act to reform the Russian economy and hasten fiscal consolidation. "Putin made large spending commitments prior to and during his election campaign, while members of the government's economic team recommended fiscal consolidation," the agency said in a statement on Monday. "Having already increased public sector wages, pensions, and subsidies, Putin has pledged to increase spending on the military, health provision, and hike wages further. If delivered, these increases could cost $160 billion, or eight percent of projected gross domestic product (GDP), over his six-year term. Rapid growth in spending has already widened Russia's non-oil and gas fiscal deficit to ten percent of the GDP, and pushed up the fiscal breakeven oil price to around $117 per barrel for 2012."

Even if Putin's reelection comes with guarantees of certainty and stability, political risks may exist depending on "how the country's political and business elite responds to the rise of middle-class anti-Putin protest that looks set to continue following the presidential election," said the agency. "Fiscal and political risks were both factors in our decision to change our outlook on Russia's rating to 'stable' from 'positive' in January," Fitch Ratings warned.

Keywords: Russia, Government, Politics - Russia, Economy, Business, Investment - Russia News - Russia

Analysts and rating agencies in Moscow have been polishing their crystal balls to preview the year ahead after Prime Minister Vladimir Putin sought and won a convincing victory in Russia's presidential election on Sunday. While his victory has been largely expected, the common theme running through all analyst notes to investors on Monday is that Putin's re-election will foster political stability and lessen political risks ­ a top concern for investors. The only dissenting voice was Fitch Ratings', which threatened on Monday to downgrade the country's ratings unless the incoming government embarks on a fiscal tightening that significantly reduces the country's non-oil and gas fiscal deficit.

Of prime concern to investors is the wave of middle-class anti-Putin protests, which many see as continuing well after the elections. Thousands of protesters gathered in Moscow on Monday to protest presidential election results hours after the Central Election Commission reported that Putin, seeking to regain the presidency after four years as prime minister, won in the first round on Sunday. The final results of the elections are due to be announced on March 17, but Putin's inauguration will take place only on May 7. "Bearing in mind the aftermath of the parliamentary elections, the markets will anxiously monitor the scale and the mood at the [post-election] rally," analysts at VTB Capital said in a note to investors on Monday.

Other analysts believe that Putin's more-than-convincing performance at the polls would take the wind out of the sails of the protest movements. "The clear-cut victory should help draw a line under the protest movement in its current form, which should be greeted with relief by investors," said Chris Weafer, chief strategist at Troika Dialog. "But the outcome is mostly priced in already, and, as expected, after a short relief bounce there is no significant impact on equities this morning." Nevertheless, many analysts see Putin's victory as a victory for his campaign platform, which stresses the need to maintain stability. "From a purely economic perspective we think that the market will take comfort from the win as a sign of continuing stability," said Ivan Tchakarov, chief economist at Renaissance Capital, an investment bank partly owned by Mikhail Prokhorov.

With all ballots counted, Prime Minister Vladimir Putin gained 63.6 percent of the vote and his closest rival, Communist Party Leader Gennady Zyuganov, won 17.18 percent in Sunday's presidential election, the Central Election Commission reported on Monday. Billionaire businessman Mikhail Prokhorov, the owner of the New Jersey Nets NBA team, secured 7.98 percent, Liberal Democratic Party Leader Vladimir Zhirinovsky ­ 6.22 percent, and Just Russia Party Leader Sergei Mironov ­ 3.85 percent. "The election results will undoubtedly positively affect the foreign investor mood and risk appetite," said Ovanes Oganisian, a strategist at Troika Dialog. "Putin and those surrounding him will work on making the current political system more stable and support for the democratic power transitions is very important."

While dissatisfaction with Putin hinged partly on the cynical job swap with outgoing President Dmitry Medvedev, analysts said investors may count on a more congenial investment climate if Medvedev takes the prime minister's seat. Putin confirmed last week that he will appoint Medvedev as premier once he resumes the presidency. Putin has until May 21 to appoint a prime minister, according to the Russian Constitution. "The new administration does not take office until May, so there are likely to be few concrete statements on policies in the next few weeks," Clemens Grafe, chief economist at Goldman Sachs in Moscow, said in a research note. "However, any comment from Vladimir Putin on how inclusive (of the non-parliamentary opposition) he would want his future government and administration to be would be closely watched." Peter Westin, chief equity strategist at Aton brokerage, said the composition of the new government, assuming it includes liberal-minded individuals like Alexei Kudrin and Mikhail Prokhorov, could boost support for market-friendly reforms.

Pushing through such reforms may be a question of economic survival for the president-elect. Fitch Ratings warned on Monday that it would closely monitor how quickly the new government will act to reform the Russian economy and hasten fiscal consolidation. "Putin made large spending commitments prior to and during his election campaign, while members of the government's economic team recommended fiscal consolidation," the agency said in a statement on Monday. "Having already increased public sector wages, pensions, and subsidies, Putin has pledged to increase spending on the military, health provision, and hike wages further. If delivered, these increases could cost $160 billion, or eight percent of projected gross domestic product (GDP), over his six-year term. Rapid growth in spending has already widened Russia's non-oil and gas fiscal deficit to ten percent of the GDP, and pushed up the fiscal breakeven oil price to around $117 per barrel for 2012."

Even if Putin's reelection comes with guarantees of certainty and stability, political risks may exist depending on "how the country's political and business elite responds to the rise of middle-class anti-Putin protest that looks set to continue following the presidential election," said the agency. "Fiscal and political risks were both factors in our decision to change our outlook on Russia's rating to 'stable' from 'positive' in January," Fitch Ratings warned.