One Billion USD Capital Flows Into Russia in August
The aggressive rhetoric between Russia and the West continues, but it doesn’t prevent Western investors from making money in Russia
This August a significant event took place that was neglected by Russian society and even the press. Russia saw a $1 billion inflow of capital, keeping the ruble stable while currency receipts were reduced. After five-months of strengthening, the ruble exchange rate decreased by 2% in August and would have more if not for capital flows into the country.
There are a few reasons for this. World interest rates are about zero or even negative, while yields of Russian Federal Loan Bonds remain fairly attractive to world investors. The Russian stock market remains one of the cheapest in the world, corporate management and financial results are good. The devaluation of the ruble strongly depreciated labor costs and other expenses for Russian companies. In August, the Moscow Central Stock Exchange index was +1,81%, and the Russian Trading System Stock Exchange was +3,03%. Like the majority of other emerging markets, the Russian stock market depends heavily on foreigners; but most importantly, the business world realizes that sanctions failed to isolate Russia and ruin its economy. Russia is not Iraq.
Of course, the situation can change in the near future. The increase the Federal Reserve rate, or a sharp, sudden decrease in the rate of the Central Bank of Russia can temporally change investors’ mood. However, it would not reverse the situation. The business world sees that Russia has survived and that it can make money. Russia is the sixth world economy; Russian stock prices are greatly underpriced, and as its economy integrates with those of Belorussia and Kazakhstan, it’s a growing consumer market.
The aggressive rhetoric between Russia and the West continues, but it doesn’t prevent Western investors from making money in Russia. Money loves silence, and words mean nothing without action.