By Kim Catechis, fund manger at SWIP Russia appears more stable now than at virtually any point ...
Russia appears more stable now than at virtually any point in the past 15 years. Democracy is becoming entrenched, yet the Kremlin has been reclaiming executive control from the regions. The federal government is in control. Hence, significant ground has been covered in the area of legislative and structural reforms that are, on the whole, market friendly. But is this stability permanent or a mirage?
Since the painful and humiliating default of 1998, the strong economy has provided an opportunity for some social expenditure, allowing some of the benefits to filter down the socioeconomic pyramid.
There is a popular misconception in the West that politics is irrelevant for most Russians ' on the contrary, public expectations are very high. President Putin has ostensibly been given carte blanche to get Russia in order, and now the voters want returns.
The machinery of the state is influenced, just as it is in any country, by a variety of players. With a constitution barely five years old, the relationships between these players have not had time to become institutional ' they are purely personal. Hence, the permanent air of intrigue in and around the Kremlin.
Foremost among these groupings, cemented together through mutual dependency and common ambitions, is the old Yeltsin entourage, colloquially known as 'the family'. They are still influential in domestic politics, particularly as a potential facilitator (or distorter) of relations between the Kremlin and the regions. They also enjoy significant media contacts. Then come the St Petersburg Liberals, a broad church, encompassing a wide variety of views. Their mainstay is their ability to have an impact on social policies. Clearly, the new elite, colleagues and associates of Putin, currently hold sway. Their weakness is a lack of direct media influence.
Consequently, Putin's popularity and public approval ratings are crucial. Given their backgrounds, few of his lieutenants have high profiles and the charisma necessary for politics. However, they have been working diligently to build up their position, sometimes at the cost of the Duma (Parliament) and the Upper House. For example, the privatisation law allows the President to privatise any asset outside nuclear energy, oil and gas, trains and utilities, directly.
In the midst of all this, there has been a degree of 'Koreanisation' of Russia, in the sense that the more successful entrepreneurs have been converting their significant companies into chaebols (Korean for conglomerates), filling vacuums left by others. The concern for investors is that this conversion results in the same low regard for minority shareholders' rights.
The likelihood is that Putin will continue to press on with the reform programme until he meets popular opposition. The landmarks that investors need to watch involve stability: the stability of the budget, the stability of the political institutions, the stability of the power brokers. And, last but not least, the stability of the President's approval rating.
Russian economy enjoys more solid base.
Raft of market-friendly reforms and legislation.
Corporate sector not highly leveraged.
Russia needs to carry out more reforms.
Surplus dependent on oil price.
Dependence on commodities.
Growth driven by platform business
No preferred charging model
To 1,552 families and businesses
HL and Liberty SIPP slowest
Lifetime and annual allowances