What is the real state of the Russian economy?

Monday, 07. August 2023
  • New opportunities in Eastern Europe, even in Russia –

Some African countries want to break free from the bondage of Europe and the USA and are now turning to Russia and China, not only after the military coup in Niger, but also in Burkina Faso and Mali. Russia’s influence in particular is growing there. As always, the primary real issue is the struggle for raw materials, in Niger’s case uranium. On 22 August, the eagerly awaited BRICS meeting will take place in Johannesburg, where a new gold-backed BRICS currency is to be presented. The US rating agency Fitch has downgraded the rating for US government bonds from “AAA” to “AA+” because of too much debt. Many African countries now feel more drawn to the BRICS countries, especially Russia and China. The Wagner Group is active in Niger, Burkina Faso and Mali, where there may be new proxy wars.

Contrary to the opinion of many Western politicians and Western media, Russia is doing much better than the West had hoped, despite the toughest sanctions ever imposed on a country, which is proven here with facts and figures. Even the IMF sees Russia on a growth path, while Germany is going downhill. The Russian central bank even warns of an “overheating” of the economy in some areas due to the record high capacity utilisation and therefore increased the central bank interest rate by 1 percentage point to 8.5 per cent. In contrast, the EU and especially Germany are experiencing a significant downturn, partly due to the partly nonsensical sanctions, which are now boomeranging.

Until the end of July, 11 stock exchanges from Eastern Europe were among the 30 best-performing stock exchanges in the world – led by the Warsaw Stock Exchange with an increase of almost 30 percent in the PTX index. Russian shares are still not tradable on Western stock exchanges because of the mutual sanctions, but some Russian shares and bonds will soon be tradable again over the counter via the broker Zerich Securities Ltd. from Cyprus. One example is the Russian consumer chain Fix Price, which made an IPO on the London Stock Exchange before the war. But before that, an account has to be opened, which can easily be done at this link: https://trade.mind-money.eu. In addition, it is now still possible to buy the Russian gold and silver producer Polymetal at rock-bottom prices via the broker Freedom Finance (or Freedom Broker) on the AIX exchange in Kazakhstan. Opening an account with Freedom Broker is quickly possible online via this link: https://freedom24.com/invite_from/2952896.

Andreas Männicke also gives his assessments of the new opportunities in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 216 at www.YouTube.com.

Next “proxy war” in Niger?

The military coup in Niger poses major challenges for the West. On the surface, the issue for France is the preservation of democracy and freedom; in reality, it is about the extensive uranium deposits that France urgently needs for its nuclear power plants. Many people in Niger feel patronised by the West, especially by France. The money from the raw material deposits does not stay in their own country, but goes to the account of foreign companies that mine the raw materials there. Many African countries are disappointed with the West, including the USA, and are now more inclined towards new partnerships with China and Russia. The Wagner Group is active in Niger, Burkina Faso and Mali to expand Russia’s sphere of influence. It would not be surprising if there is a new proxy war in Niger soon.

BRICS Summit on 22 August in Johannesburg to set a new course

On 22 to 24 August, the “BRICS” meeting with Brazil, Russia, India, China and South Africa will take place in Johannesburg, where a new partially gold-backed crypto-based currency is to be created, which is to compete with the US dollar at some point in the future. At the beginning of August, the US rating agency Fitch downgraded the rating of US government bonds because of too much debt, which can be understood as a first warning sign. The new BRICS currency is intended to reduce US dollar dominance, with many countries already moving away from using the US dollar as a trading currency. With the BRICS currency, the renminbi is to become the dominant currency, which in many cases is already being used as a trading currency. It remains to be seen whether the USA will still be able to afford such high current account and trade deficits later.

Go for Eastern Europe now

Due to the sharp rise in interest rates by the central banks, both the USA and the EU are now threatening to slide into recession in the second half of the year. In contrast, Eastern European countries still have almost twice as high growth rates as Western European countries and much lower national debt, one could even say half as high on average. For this reason alone, investors should now also take a look at shares from Eastern Europe.

Different forecasts for the Russian economy

Despite all the prophecies of doom, the Russian economy is now developing much better than Western politicians and media had hoped, despite the largest sanctions ever imposed on a country. But it is also developing better than the Western media portray it. Even the IFW now sees Russia on a growth path (+0.7 per cent) while Germany is sliding into recession (-0.3 per cent). OPEC, the World Bank, the UN, the EU Commission and many Western economic institutes and banks, on the other hand, are forecasting a recession for Russia this year. But already last year the estimates were adjusted more and more to the Russian forecasts and figures. Already last year, the minus in GNP was only 2.1 per cent and not minus 10 per cent as predicted by the German Minister of Economics and children’s book author Robert Habeck.

Overheating of the economy in some areas in Russia

The Russian central bank usually makes very conservative, but also accurate forecasts. In its latest forecast, the Russian central bank increased the estimated GNP growth to 1.5 per cent for 2023. In some areas there is even overheating because of the very high capacity utilisation. The main reasons for the relatively high growth are not only the “war economy”, i.e. increased arms production, but also the increase in private household and government consumption. Also due to the base effect, i.e. the slump in the economy because of the war and the sanctions last year, some sectors grew particularly strongly such as in July the production of motor vehicles by 53 per cent, that in metallurgy by 46 per cent, such as the production of furniture by 34 per cent, such as the production of electronic equipment by 32 per cent, such as the production of aircraft and ships by 26 per cent and in mechanical engineering by 15 per cent.

High capacity utilisation and weak rouble drive more inflation in Russia

Capacity utilisation is at an all-time record high of 81 per cent in July. The unemployment rate is at an all-time low of 3.9%. Inflation recently rose again somewhat also due to the very weak rouble and imported inflation. Inflation is expected to reach 5 to 6 per cent by the end of the year, similar to the EU. Russia is now in a state of upheaval due to the war and the sanctions. An important element is import substitution, i.e. producing many products in one’s own country, which is already working very well in agriculture. Russia is self-sufficient in many areas of agriculture. Russia has even become the world’s largest exporter of grain. Therefore, Russia is now also able to send grain free of charge to some African countries after the grain agreement with Ukraine was terminated.

China becomes the most important trading partner for Russia

Nevertheless, Russia will have to shift its exports from Europe to Asia, which cannot be done overnight from a purely logistical point of view. The construction of new pipelines to China will take several more years, after the pipelines to Europe will hardly be used to capacity or will be shut down completely. China is becoming the most important trading partner with a foreign trade volume of 200 billion USD, but especially in energy exports India is now becoming an increasingly important buyer, especially of oil. Nevertheless, the current account surplus is decimated by almost 90 per cent to 27 billion USD and the trade surplus is reduced from 300 to 100 billion USD, which in turn weakened the rouble. Now that oil prices have risen a little again, money could also flow back into the prosperity fund, which is currently financing the budget deficit.

High capital flight and weak current account weaken the rouble

But the rouble also weakened due to ongoing capital flight. Last year, net capital outflows amounted to USD 239 billion, which is a historical record. The money went primarily to CIS countries such as Armenia, Georgia and Kazakhstan, but also to Turkey, where many skilled workers also fled due to the partial mobilisation in September 2022, leading to labour shortages, especially in the IT sector.

Russian banks with record profits

Nevertheless, the budget deficit is only 2.5 per cent of GNP, which would mean that Russia would fulfil the Maastricht criteria, incidentally also with the public debt ratio of only slightly over 20 per cent. Russia still has enough funds to finance the war. Most of the state’s ruble bonds are bought by the big banks Sberbank, VTB Bank and Gazprombank, which, by the way, will make new record profits this year. In the first half of the year, Russian banks earned 1.7 trillion roubles, more than ever before. 1.7 trillion, also due to the high interest surplus. Last year, however, they lost 1.5 trillion roubles, more than ever before. roubles, more than ever before. Due to the danger of rising inflation rates, the Russian central bank recently raised the key interest rate by as much as one percentage point to 8.5 per cent.

No exodus of foreign companies and products in Russia

It is not correct when it is claimed in the Western media that most foreign companies are leaving Russia and that those who stay there will only be expropriated. It is true that there are many large American and German companies that have left Russia of necessity, such as McDonalds, Ikea, VW, Siemens and also Wintershall. Western banks and large accounting firms as well as law firms have also closed their branches in Russia, with the exception of Raffeisen Bank International, which is still in doubt about selling its assets in Russia, although enormous political pressure is being exerted on the company by the EU and the USA. If foreign companies now want to sell their assets in Russia, they have to accept a discount of at least 50 per cent. There have been quasi-expropriation cases with Danone and Carlsberg, where the assets became almost worthless.

The majority of foreign companies stay in Russia

But the majority of foreign and also German companies stayed in Russia and also earn good money there. Allegedly, only 6 percent of German companies have effectively left Russia. So there is no exodus of foreign companies as many Western media report. Bayer, Bosch, Claas, Ehrmann, Metro, Globus, Knauf, Liebherr, Heidelberger Materials, Ritter Sport and Stada, among others, are still active in Russia. New investments are being postponed. There is no economy of scarcity in Russia either. Almost all products can still be purchased, albeit at higher prices. This may change as a result of the sanctioning of countries that promote parallel imports for Russia, but it will soon become less so, as before all hardware products from the West. As far as possible, China is now filling the gap with products, especially cars, but this is not possible everywhere.

Go “bargain hunting” in Russia now

Russian shares are no longer tradable for Western investors, as the DR programmes have been dissolved and Western investors are denied access to the Moscow Stock Exchange. Nevertheless, risk-averse investors can now go “bargain hunting” in Russia and buy Russian shares on the OTC market, i.e. over-the-counter. For example, the broker Zerich Securities Ltd. on Cyprus is now offering to buy the discount chain Fix Price at a high discount. Fix Price is not only very successful in Russia, but also in many CIS countries and is growing steadily there. The share price is now very low, as with many Russian shares, also because of the sanctions. But the recovery potential is enormous. So buy a Russian discounter at discount prices now!

Zerich Securities Ltd. and Freedom Broker (Freedom Finance) with exceptional offers.

There are a few exit options after the purchase, such as the company itself buying up the shares, which Magnit did before. The share price rose sharply as a result. Purchases via the OTC market are also possible for Yandex, Ozon and TCS Group. Gazprom bonds can also be bought over-the-counter at discount prices. To buy such bargains as Fix Price over-the-counter, all you need to do beforehand is open an account with Zerich Securities Ltd, which can easily be done online at the link https://trade.mind-money.eu.

A good alternative to Russian shares is now also offered by shares from Kazakhstan, which can now be purchased directly online via the broker Freedom Broker (or Freedom Finance). A special bargain here is the Russian gold and silver producer Polymetal, which has now switched from the London Stock Exchange to the AIX stock exchange in Kazakhstan. You can now buy the share at a bargain price of 2.56 USD, which should pay off in the long run. Again, however, you also need to open an account online beforehand, which is easy to do at the following link: https://freedom24.com/invite_from/2952896. Both brokers can also help you if you still have questions about Russian ADR, which is now no longer tradable.

First inform, then invest

But there are also new opportunities in Eastern Europe in general, where there are always outperformance opportunities. Find out now in detail about the background and the development of the Ukraine/Russia crisis, but also about the future recovery potential of undervalued shares from Eastern Europe. There are also new opportunities in the Baltic States, Kazakhstan, Georgia and Ukraine.

The PTX index for shares from Poland has already risen by 29 per cent this year, the HTX index for shares from Hungary by 22 per cent, the CROX index for shares from Croatia by 23 per cent and the ROTX index for shares from Romania with 14 per cent – all better than the DAX with a plus of “only” 13 per cent. The CECE index (with Poland, Hungary and the Czech Republic in the boat) even gained 24.6 per cent. So even after the Ukraine war, it is still worthwhile to look beyond the horizon to Eastern Europe.

Order now a trial subscription (3 issues by e-mail for only 15 €) of the monthly stock letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend/bond special as well as with lots of background information and new investment suggestions such as with the “Stock of the Month” and lucrative certificates at www.eaststock.de, there under Stock Letter. The next EST will be published in August 2023 with a special on Kazakhstan and Russian ADR/Russia.

TV/radio notes: The last radio interview was on 2 March 2023 and previously on 31 October 2022 on Börsen Radio Networks. The next radio interview is on 2 October 2023 Stock Exchange Radio Networks. Also watch the latest EastStockTV video on YouTube about the Ukraine war and the new outperformance opportunities for Eastern European stock markets. You can download the interviews and videos at www.eaststock.de, there under the heading “Interviews” as well as the videos of EastStockTV. By the way: have you already subscribed to the EastStockTV YouTube channel?


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