This step will be a turning point for many investors who want to start investing in the Russian market, but previously doubted the wisdom of doing so.
Is Russia really becoming transparent?
Joining the international trading club should be relatively straightforward for Russia, as for many years now it has been applying laws passed by the existing members. It was a greater degree of openness in Russian business activities that investors thought was lacking. Most importantly for them, investors expect that accession to the WTO will help to restore order in the tax laws of the country and to fight corruption.
Moreover, there is hope that eventually all restrictions on foreign investment will be lifted.
Russia has been conducting negotiations on WTO accession for almost two decades now. There is hardly any other country in the world that has spent so much time and effort on preparing itself for membership.
The international rating agency Standard & Poor’s has raised the short-term credit rating of Russia’s foreign currency obligations, thereby giving a positive signal to investors. This may become a step that will encourage an increase of foreign capital flowing into the Russian market, which is as risky as it is profitable.
It is common knowledge that investors are typically growth-oriented and look for opportunities to invest their funds to achieve the greatest profit. Experts point out Russia’s strong resistance to negative economic trends in the world and its flexible monetary policy. These factors have enabled the country to accumulate healthy reserves.
Good figures for gold reserves and for the ratio of external debt to GDP should also help to dispel doubts that investors have in relation to Russia. Furthermore, Russia’s foreign debt is one of the lowest in the world. The Russian market also shows growth, albeit slight, in contrast to other developed economies, which are still facing difficulties.
External rating improves
At the same time, Standard & Poor’s points out the opportunistic dependence of the Russian economy on commodity prices, as well as weakness of its economic and political institutions. These factors still prevent experts from assigning Russia higher ratings as compared to many other economies.
International investors from the BGF Emerging Europe Fund, which is operated by BlackRock, estimated Russian assets as "above market". US investment fund BlackRock, which manages $3.3trn, is planning to significantly change its portfolio in favour of Russian assets. In the future, the fund intends to invest in a number of Russian companies.
Interest in Russian shares has been driven by the high price of assets in Eastern Europe. In particular, investors see the prices for Polish and Czech stocks as inflated compared with Russian ones.
International investment funds are mostly attracted by the huge volume of the Russian domestic market and the relatively cheap labour costs for skilled workers. At the same time, however, they are discouraged by the opacity of the authorities and lack of support from them.
