http://seekingalpha.com/article/3273695-kudrin-could-end-russian-sanctions-a-bull-rallywould-follow?ifp=0
Steven Halliwell Special situations, event-driven, hedge fund manager, foreign companies Profile| Send Message| Follow (9 followers)
Kudrin Could End Russian Sanctions, A Bull Rally Would Follow Jun. 22, 2015 4:40 AM ET | 8 comments | Includes: AKSJF, GZPFY, RNFTF, RSX Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
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An end to sanctions and sweeping economic reform in Russia is becoming more likely, despite all the saber-rattling with the West, as a liberal Putin ally becomes even more prominent. Terms for a Ukraine settlement were informally "clarified" by Alexei Kudrin at a security conference in Finland, suggesting a role as head of government for the former Finance Minister. A real commitment to liberal reforms, backed by Russia's alienated entrepreneurial class, would bring a rapid end to the sanctions regime, new capital and a sustained bull rally.
A sanctions-ending, reform-oriented Russian government came a little closer to reality this week. Ex-Finance Minister Alexei Kudrin, a close Putin confidante and liberal economist, laid out steps to end the conflict in Ukraine at a security conference in Finland. Following on two weeks of prominent speeches on the Russian economy and his possible return to government, the speech in Finland (plug URL into Google translate for an English translation) displayed Kudrin's potential to serve not as Finance head but as Prime Minister. Sacking Medvedev and naming Kudrin would likely set off a massive rally in Russian stocks, as the sanctions were systematically dismantled.
The global headline from Kudrin's Helsinki speech was that the West overestimated the "Russian threat" to neighboring countries, and that a guarantee against further NATO expansion would help reduce tensions. When Finland's President said it sounded like a guarantee against NATO expansion was a requirement for a settlement of the Ukraine conflict, Kudrin "clarified" that observing the Minsk II agreement was the real requirement, and that the question of NATO expansion was "tied to relations between Russia and the West" (that is, a topic for a larger conversation). Kudrin, who claims that Russian military spending is costing the country 1-1.5 percent of GDP growth annually, was signaling that a guarantee against Ukraine joining NATO was not a necessary precondition to end that conflict. Kudrin's appearance at a high level conference on Ukraine is an indication that he has the President's support to speak about more than the current economic situation. On the health of the Russian economy, Kudrin has a consistently pessimistic message -- unless basic structural reforms are undertaken, Russia will stay in stagnation. In recent weeks, as analysts in Moscow and the West were buoyed by ruble strengthening and lower Central Bank lending rates, Kudrin declared the economy is in a "full-blown crisis," and that the economy would continue to weaken through 2016 if a new reform agenda is not introduced. Shortly after making that dire warning, an unexpected ten percent drop in consumer spending and an eight percent decline in manufacturing were reported, figures that are more in line with the projected 3 percent decline in GDP for 2015 than the moderate late year recovery that Russia's Economics Ministry has been floating. Kudrin is unique in having the President's ear while publicly criticizing government policy. Putin values some diversity in his inner circle, if only to maintain control over all competing factions. But Kudrin is still officially an outsider, and has credibility with the liberal opposition, whose support would be key to implementing a reform agenda. Confidence in Russian government institutions among entrepreneurs, who constitute the most vital portion of the opposition, is extremely low (plug URL into Google translate for an English translation) -- a situation that makes implementing any long term structural change under the current administration inconceivable. In a June 18 speech at the St. Petersburg International Economic Forum, Kudrin asked "Why don't we bring the presidential elections closer and announce a new program of reforms?". The suggestion was immediately criticized by those surrounding the President, but increases his standing with Putin's staunchest critics. By distancing himself from the Putin inner circle, Kudrin is strengthening his standing among the reform camp. If Putin finds it necessary to install a reform government led by Kudrin, mid-cap stocks are likely to rally. Russian retailing stocks (Lenta, X5) are most likely to outperform in the ensuing rally, as consumers regain confidence. Companies that have benefited from the weak ruble -- steel and commodities exporters (Severstal, Novolipetsk, Phosagro) -will likely lag, given that the ruble will strengthen as new foreign investment flows increase demand for local currency, reducing local currency profits. A big question mark
looms over the major state-owned oil and gas companies (Rosneft (OTC:RNFTF), Gazprom (OTCQX:GZPFY)), where corruption, lack of transparency, and weak management makes them obvious targets of a reform government's investigations. Banks (especially Sberbank (OTC:AKSJF)) should rebound as funding issues disappear and credit quality for consumer loans improve. Investors should be prepared. Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Share this article with a colleague 1inShare About this article Emailed to: 472,836 people who get Macro View daily and 147,745 people who get Global Investing daily. Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor » Tagged: Macro View, Market Outlook, Russia Problem with this article? Please tell us. Disagree with this article? Submit your own. More articles by Steven Halliwell » • Russian State Corporation Eurobonds: At Risk From Regional Debt Crisis Fri, May 15 • Gazprom - Corrupt Payments Investigation Could Signal Big Trouble Fri, May 8 • The End Of Russian Sanctions May Be In Sight: An August Rally In Russian Stocks? Thu, Apr 30 • Brave New Ruble: Kudrin Could Reverse A 99% Decline Fri, Apr 17 Comments (8) Track new comments •
crimsonbey Comments (770) | + Follow | Send Message
"Why don't we bring the presidential elections closer and announce a new program of reforms?"
This is impossible (or extremely unlikely) Putin wouldn't be able to run if they moved the election date closer according to constitution.
Your looking at it through quadruple lens rose colored glasses. Kudrin has been in gov't since Yeltsin, he is not an outsider.
The most likely outcome is in December sanctions won't get extended and in January they end at least from Europe. 22 Jun, 05:23 AMReply! Report AbuseLike2 •
User 509088 Comments (1274) | + Follow | Send Message
You think Russians trust the entrepreneurs?
It's an interesting idea. I suspect London would lose all their oligarchs. Conflict with the west would spin up to blame the Other, like Ukraine uses Russia to cover their own thievery.
New rights would not come, Russians would need to be restrained for the latest harvest of their valuables. 22 Jun, 07:04 AMReply! Report AbuseLike1
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linkdonald Comments (947) | + Follow | Send Message
Ending sanctions is a terrible mistake. The long term costs dwarf any short term gains. The term "reforms" in Russia simply means putting on a new long coat, nothing really changes. Russian actions in Georgia, Moldavia, and Ukraine along with threats in the near abroad show everything stays the same. The West is acting like the Bourbons, they learned nothing and forgot nothing. If anything, sanctions should be tightened. 22 Jun, 11:04 AMReply! Report AbuseLike0
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Steven Halliwell , contributor Comments (3) | + Follow | Send Message
Author’s reply » I acknowledge there is good reason for pessimism -- all the overt signals point to continued impasse or worse. The question is whether Putin has a pragmatic strain and enough concern for legacy to get out of a dead end economic approach. 22 Jun, 11:24 AMReply! Report AbuseLike0 •
James Hanshaw Comments (2441) | + Follow | Send Message
Interesting article. I too think there is a touch of rose colour in your glasses but I also see some potential for reality in it too. Firstly, I doubt the EU will extend sanctions beyond their expiry date despite US squealing to extend them. Secondly, I doubt NATO will make further attempts to gain Kiev as a member. Lastly, Putin maybe be many things but one thing he is not is stupid and I doubt he will aggravate the situation in Ukraine once he sees ann end game in sight for sanctions.
The biggest danger to my rose tint is the US with its perpetual war machine aggravating the situation in Ukraine.
I disagree that a stronger rouble will hurt Phosagro. That is my only Russian investment and I own it on the London exchange. It has a low cost base and its commodity is sold in USDs - it would take a large appreciation of the rouble to erode that advantage and many of its main competitors are based in stronger currency, higher cost countries, like Mosaic of the US. . 22 Jun, 12:53 PMReply! Report AbuseLike0
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Marty941 Comments (190) | + Follow | Send Message
"The question is whether Putin has a pragmatic strain and enough concern for legacy..." Really? Perhaps you should be paying more attention to the totality of his "leadership" approach and methods, including outright assassination of opponents, arrest and theft of assets of those who do or might fund opponents, invasion of Georgia and Ukraine and annexation of Crimea on the pretense of protecting Russian ethnic populations, personal aggrandizement on a grand scale (billions of dollars), and an incredibly ridiculous self image propped up by fake stunts of "manliness" (sure, everybody believes that he beat a pro team at hockey). He behaves like a modern version of Hitler, proclaiming ultra-nationalistic slogans, lying about what his military is doing, and claiming that the US and Europe are trying to "destroy Mother Russia" so as to reinforce the "need" for USSR-type media and personal controls. He sees himself as the savior, the one who will rebuild Russia into the superpower that was the USSR. Like the leaders of the USSR, he has no concern at all for the economic well-being of the typical Russian. He is only interested in expanding his absolute power and control, and if some misleading "soft" statements can help him (like they did for Hitler), he'll allow them. He is very, very dangerous; the sanctions must be continued or strengthened, to strangle the Russian economy if necessary, until he is out for good, and more reasonable leadership takes over. 22 Jun, 01:09 PMReply! Report AbuseLike0
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Domovyk Comments (157) | + Follow | Send Message
I have to agree with Marty 941 view of Putin. He is all about absolute power and as an old saying points out. "Power corrupts and Absolute power corrupts absolutely." Russia's economy has absolutely no chance as long as any of this group stays in a position of power. They came to power and wealth from Corruption in the weakening USSR and have only become greedier. Investment will dry up as Risk return in a such a corrupt state becomes to heavily leaned towards Risk. Crimea is an example Lie, lie and more lie. Then immediate redistribution of ownership of wealth. And let me guess the invasion of Crimea and now eastern Ukraine has nothing to do with the recent discovery of large natural gas deposits in the area. Forget the rose colored glasses view some people have said about this article. This is a case of rose colored welding goggles. 22 Jun, 03:03 PMReply! Report AbuseLike0
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Flod Comments (115) | + Follow | Send Message
This is good news from Kudrin!. Disappearance of the sanctions will improve the relations West-East!