Citi: Prospects for investment in Russia

 On published an article that refers to a group of analysts from Citi


 General message: while in Europe, the crisis in Russia has good prospects for growth — Invest in Russia. However, by itself this is not quite so unambiguously good, among the candidates for investment (including foreign companies operating in our market) half — the tobacco companies. So I write it here, not because we are called promising market, and that’s because of this schedule:


 The expected growth of some sectors of the economy.



 Full article under the cut.


Moscow. July 10. FINMARKET.RU — A group of analysts led by CitiGroup Kingsmill Bond and Andrey Kuznevym compared the growth of the Russian economy and the euro zone economy, and the dynamics of corporate profits. They came to the extraordinary conclusion — Russia may become the savior for European companies and investors. The first will be able to earn money for Russian consumers, and the latter to invest in European companies operating in Russia.


Russia — not Europe. In a good way


  • Russia’s GDP this year will grow by 3.5% forecast in Citi. Eurozone GDP, in contrast, will decrease by 1%.




  • Russia sets itself apart from Europe and the level of debt. For example, the debt of Russian households is 10%, and Europe — 74%. Russia’s national debt is only 9%, while in Europe — 95%. A large portion of the debt is denominated in Russian rubles — it does not threaten currency debt crisis.



  • It’s not just debt. Most macroeconomic indicators in the country better than the EU’s current account surplus in Russia in 2012 will amount to 6% of GDP, and in 2013 will drop to about 2%. The Russian government is sorry about it, but in comparison with France, Italy or Spain, the current account is in deficit for a long time which is a good number.
  • In Citi expect a small budget surplus this year and next. In Europe, the luxury can afford only Switzerland.
  • Unemployment in Russia is at the level of Germany, it is much lower than in France, Italy and, especially, Spain.
  • Unlike the Europeans, Russia has another distinct advantage: its own currency and an independent central bank that can carry out the necessary national economy of an independent monetary policy. The ruble has now become much more flexible — it reduces the impact of external shocks on the Russian economy.
  • The crisis in Europe can greatly affect Russia. The main product of export of Russian gas to Europe is. And only Russian companies traded on the stock exchange, sell most of their products to Europe — "Gazprom", NLMK and "VimpelCom".


Russia — Land of Opportunity


  • Russia — the largest economy in Europe, in terms of population. For a long time Russia became the largest European market for consumer products of medium and low price category, such as mobile phones, beer, washing machines and televisions. In 2012, Russia will overtake Germany and the largest market for the sale of cars.



  • The level of penetration of various goods and services to the Russian market, compared with Europe, is still very low. In Citi is attributed to the fact that the process of transition to capitalism has not been completed, and the standard of living of Russians began to rise recently. This means that consumption in the country is expected to grow for a long time, and the business will be able to extensively develop and earn.
  • Western companies are turning to Russia party. General Motors said that because of the stagnation in Western Europe, a key market for European companies will be Russia. Russia — a key driver of growth for companies such as Scania, Coca-Cola and Raiffeisen.
  • Russia — a huge field of mergers and acquisitions: promising markets completely consolidated, and the company has room to grow. For example, the market share controlled by the three largest Russian retailers to lower the share of the three largest European retailers in the EU market.




  • However, the secret of Russian companies is that they are very profitable. Profitability of Russian companies is much higher than their European competitors. Russia is one of the most lucrative global markets.

An additional bonus for the investor — the low market value of Russian assets. The Russian stock market remains one of the cheapest, even when compared with the crisis Evropoy.Bolshinstvo sectors, particularly gas, banks and staliliteynaya industry trade at significant discounts to similar companies in Europe.




Key risks


However, investments in Russia are subject to risks, you should remember wanting to capitalize on Russian consumers and the profits of companies. In Citi identified two universal risks that investors remain just accept it. First, it is dependent on the price of oil, and the critical level of prices for Russia is $ 80 per barrel. Second, this is a weak regulatory environment, which once again confirms the case "Yukos". But there are three risks that foreign investors can still fight.

1.Plohoe the quality of corporate governance. This is largely due to the fact that companies run by large shareholders and not investors.

2.Nedostatok liquid companies on the market, especially in fast-growing sectors.

3.Slabye management team.


Tips for investors


The best way to take advantage of Russia and avoid these risks, according to Citi, are investing in global companies that have already invested in Russia. Most of them come from Europe.

Group 1. 20% or more profit comes from the Russian market. These include Japan Tobacco, Tele2, Carlsberg, Oriflame, Raiffeisen and others.

Group 2. 10-20% of profits coming from Russia. This group includes Danone, truck maker Man and Scania, hypermarkets Metro, Coca-Cola and others.

Group 3. 5-10% of profits coming from Russia. These companies are: Philip Morris, Brittish American Tobacco, Renault, Adidas, Henkel, Pirelli and others.

The share price and financial results of the first two groups of companies are highly dependent on the situation in Russia. These shares in Citi advised to invest both domestic and foreign investors. Especially now, because Russia is becoming more open to foreign investors due to the entry into the WTO. And to reform the Russian government will push the end of the super-cycles of high commodity prices.




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