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Record-low inflation in Russia

Carnegie Rysslandsfond rose 1.14% in November. An oil price well above USD 60 is propping up the market to a certain extent, but the Russia investigation in the US is heightening market tension.

At its November meeting, OPEC+ (OPEC and Russia) agreed to extend production limits to the end of 2018. This will be good for oil prices next year, but must be regarded as discounted at present. It is now going to be up to American shale oil producers to meet the increased demand, but it is doubtful whether they will get the job done.

The World Bank has increased its growth forecast for Russia from 1.3% to 1.7% for 2017. The organisation is also projecting growth of 1.7% for 2018 and 1.9% for 2019. They note, however, that the country is still heavily dependent on oil and that structural reforms are called for.

Russia has climbed 5 places to number 35 in the World Bank’s “Doing Business” ranking. Russia’s objective is to rise to the top 20 countries on the list.

Inflation in Russia is still dropping and it now looks like the inflation rate for 2017 will be below 3%. This is unique in post-Soviet Russian history.

Many companies have released their quarterly results, and several in the oil sector have presented good reports.  Lukoil, for example, delivered profits 5% above forecast. Overall, Gazprom came in about as expected, although profit improved somewhat. But cash flow was still negative and debt increased to 1.5 times EBITDA.  Gazprom Neft’s report was better than expected at all levels.

In the banking sector, Sberbank reported record profit for the first nine months. Performance was very strong across the board, with an ROE of 28% particularly impressive. The result was not unexpected and the stock has, it goes without saying, been one of the big winners this year.

Norilsk Nickel is now going to make a push to be “greener”. The company has announced that this will be the main priority for the next 3–5 years. They believe this will create shareholder value over the long term, but that it will entail higher investments and lower dividends for the next few years.

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Carnegie Rysslandsfond invests in equities listed in Russia and in other parts of the former Sovjet Union. The region has great natural resources as well as many excitingcompanies in newer...

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