Russia: Other Points of View

DROP IN PM's APPROVAL RATING MAY SPUR INFLATION ACTIONS

FINANCIAL ANALYSIS

by Chris Weafer

Investors are again starting to focus on economic indicators that show recovery in the US is still on track. Yesterday’s much better than expected US housing update helped push the Dow temporarily through 12,000, albeit late selling saw the index end just below that mark but with a session gain. The US Fed also confirmed that the $600 billion quantitative easing programme will be fully carried out to ensure the economic recovery does not stall.  Asia’s markets and most commodity prices are trading higher this morning. That should also provide a favourable backdrop for Russia’s bourses and the ruble this morning

The pattern in global markets and oil this year is, so far, following that of the past two years when an early January burst of optimism stalled in mid-month before investors again became more optimistic about growth at end month. For each of the past two years, it has been very profitable to buy into the mid to end January dip and to ride the subsequent rally for several months in the spring. The Chinese 40-day New Year holiday season, which is now under way and with the Lunar New Year this day week, is probably a contributory factor in that trend.

WHY PUTIN WILL NOT RETURN TO THE PRESIDENCY….NOT IN 2012 ANYWAY

COMMENTARY

by Gordon Hahn 

As Vladmir Putin’s presidency was coming to an end, the Washington indeed Western consensus was that Putin would seek a way to remain president, despite the Russian constitution’s limit on no more than two consecutive presidential terms. 

Invoking Putin’s and the Russians’ native khitrost’ or cleverness, experts exclaimed far and wide that rather than simply ignore the constitution’s two-term limit, Putin would force through constitutional amendments or laws that would allow him to remain in the Kremlin.  He also might leave temporarily appointing a puppet as an interim placeholder so technically he would not violate the limit on no more than two consecutive terms.  Even if Putin decided to forego the presidency, experts explained, he would anoint a hardline successor from the FSB, someone like Sergei Ivanov, to continue Russia’s inevitable turn away from democracy and foreign relations with the west.  Instead, Putin left the Kremlin and backed Dmitrii Medvedev, the most liberal high ranking figure in his administration, as his choice for president.

TWICE LOST IN TRANSLATION

ROPV CONTRIBUTORS

by Nicolai Petro

Correspondent Fred Weir's recent report  ("Russian Orthodox Church calls for dress code, says miniskirts cause 'madness'," Christian Science Monitor, January 20, 2011) portrays Fr. Vsevolod Chaplin, one of the Church's senior prelates, as a silly, reactionary misogynist. Fr. Vsevolod's letter  responding to critics is cited as proof, but Weir's quotes from this letter are either egregiously mistranslated, or simply invented.

For example, Weir says that Fr. Vsevolod calls for a national dress code that would "force women to dress modestly in public and require businesses to throw out 'indecently' clad customers." In fact, Fr. Vsevolod says nothing whatsoever about "forcing" or "requiring" anything.  He appeals for a public discussion of proper public attire, for both men and women. That is all.

RUSSIAN FEDERATION WEEKLY SITREP

by Patrick Armstrong

Domodedovo. A suicide bomber team killed and wounded many in the arrivals area of Domodedovo Airport. Not the first time jihadists have attacked outside the security zone and we will see more. It is possible that this attack may wake up Westerners to the reality that it’s all the same thing: the NORAD commander appears to understand. On the other hand, others still blame the “Putin system”; one assumes these editorialists blamed the December Stockholm bomb on the "Reinfeldt system". Medvedev has dismissed several officials, blaming lax security. Some of this is the ancient Russian tradition of pretending to solve the problem by firing somebody, but it also fits with Medvedev’s policy of clearing out deadwood.

START. The Duma finally ratified the agreement on Tuesday by a comfortable margin and the Federation Council did so the next day. The question of missile defence is still a potential stumbling block and Russia will denounce the Treaty if it feels US developments in this area threaten it. But that was always the reality and one hopes that a rational settlement will be found.

DOMODEDOVO AIRPORT SUICIDE BOMBING

by Gordon Hahn

On December 31st, a woman of Caucasus nationality apparently accidentally detonated a bomb in a single home structure on the property of the “Obyekt” Club on Golovacheva Street in southeast Moscow. The 80 square meter house was completely destroyed.  Her body and that of a companion were badly mutilated and severed by the explosion, and her husband was reported to member of the Caucasus mujahedin fighter under arrest in Pyatigorsk, Stavropol in the North Caucasus.  On January 6th another woman reportedly of Chechen nationality was arrested in Volgograd just outside the North Caucasus.  The 24-year old woman was brought to Moscow for interrogation and was siuspected of organizing a terrorist attack in the Russian capitol.

Thus, on January 24th when one or several suicide bombers detonated their bombs near the international section of Moscow’s Domodedova Airport killing 35 and wounding as many as 180, law enforcement was probably or should have been engaged in frantic hunt for possible terrorists in Moscow.  Much has been said about the inexcusably lax security at the airport, and the potential for a terrorist attack should have been communicated to the managers of transport infrastructure across the city.  We do not know whether this was done or not.  However, any Americans’ experience with U.S. airports should make it abundantly clear that it would be very easy to carry out a similar attack in any U.S. airport, where there are no obstacles to entering the main terminals with several heavy luggage bags and approaching crowded registration and ticketing areas.

RUSSIAN FEDERATION WEEKLY SITREP

by Patrick Armstrong

Corruption. A reasonably big fish was hooked yesterday: the head of the CIS anti-organised crime bureau (!), Alexander Bokov, was arrested in Moscow on embezzlement charges. The case seems to be that he extorted a large bribe and then trousered it. A couple of days earlier a case opened in Altay in which several officials were charged with hunting endangered animals two years ago. The former Mayor of Barnaul was charged with what looks to be a privatisation swindle six years ago. Last week the Interior Minister said that “Criminal proceedings were launched against some 10,000 officials, one-third of them were started for taking brides”. The tax Service has opened a 24/7 phone line and e-mail address so that citizens can report corruption examples. This is not nothing; gradually the campaign is starting to bite.

RUSSIA WEEK: STILL ALL ABOUT OIL

FINANCIAL ANALYSIS

by Chris Weafer

See separate Rosneft-BP comment and Stocks to Watch This Week  later in this note.

Despite price weakness over the latter half of last week, the mood in global markets is still generally positive. Markets are more likely to add further gains than to fall. That’s not to say that volatility will not increase, i.e. as investors are very sensitive to newsflow. This week the main newsflow will come from the big Wall Street banks reporting 4^th Qtr numbers (see This Week below) and from the China-US summit that will take place in Washington. If the banks report numbers as good as JP Morgan did on Friday and investors take the view that the threat of a trade/currency stand-off is lessened, then all markets will finish this week higher.

Emerging market currencies are becoming a hot investment theme – at the expense of gold - as Central Banks move to raise interest rates (Thailand and Korea did last week) in an effort to combat inflation. The euro may also extend its recovery against the dollar this week as the imminent threat of another debt crisis has waned. Portugal, Italy and Spain all sold new debt issues last week and Japan joined China in declaring that it would buy more eurozone sovereign debt.

The combination of reducing euro debt risk, positive 4^th Qtr US earnings, increasing appetite for developing economy currencies and with crude oil (Brent and Urals) near $100 p/bbl, creates a near ideal backdrop for the Russian equity market and for the ruble. We should see further gains in both again this week. The year to date gains have been dominated by the metals & mining sector and the oils. This week, i.e. apart from a Rosneft “adjustment” early Monday, we should see the banks taking more of a lead.

The full note, with the table showing the best and worst blue chips year to date, can be downloaded here  Download Russia_Week_Jan_17_11

ISLAM, ISLAMISM AND POLITICS IN EURASIA REPORT NO.32, JAN 13 2011

by Gordon Hahn

Monterey Institute of International Studies

CONTENTS:

RUSSIA

• TRENDS IN JIHADISM IN RUSSIA AND EURASIA, 2010
• DAGESTAN VILAIYAT’S RESPONSE TO AMNESTY OFFER
• CE’S OVKBK KILLS SEVEN FSB OPERATIVES
• KABARDINO-BALKARIA’S CHIEF MUFTI AND DAGESTAN IMAM KILLED
• RECENT FOREIGN GLOBAL JIHADI REVOLUTIONARY IDEOLOGICAL-THEOLOGICAL TRACTS IN CE MEDIA
• AMIR AL-BARA OF DAGESTAN VILAIYAT’S MAKHACHKALA-KASPIISK SECTOR KILLED?

CENTRAL ASIA

• VIOLENCE A NORMALITY IN KYRGYZSTAN
• MORE CLASHES IN TAJIKISTAN, BEDAKI KILLED
• SHAKHIBIDDIN SHOMIRZAYEV CONVICTED IN UZBEKISTAN
• EFFORTS TO COMBAT EXTREMISMS IN KAZAKHSTAN

To access the full report, please click here  Download KAVKAZJIHAD_MonTREP_IIPER_32_Jan_2011

RUSSIA STRATEGY BRIEFING: MODERNIZATION – THE POLITICAL PRIORITY INDUSTRIES

RUSSIA STRATEGY BRIEFING

by Chris Weafer

Included below are three informal notes looking at the practical implications for investors of the president’s modernization programme. Economic Glasnost was issued Dec 21^st and Talking Modernization, Prioritizing Energy was issued January 5^th. Modernization – the Political Priority Industries was issued January 14^th.

Strategy Briefing: Economic Glasnost

Twenty years after Soviet leader Mikhail Gorbachev’s policy of glasnost brought about the end of the Soviet Union, the government of President Dmitry Medvedev and Prime Minister Vladimir Putin is again embarked on a strategy of openness. Only this time they are banking on economic glasnost to attract the investment flows that Russia needs to both create greater diversity in the country’s oil-dependent economy and to rebuild its aging infrastructure. 

They are also hoping that the open door will swing both ways as Russia’s industries also need to create strategic links with established companies, especially in Europe. That is what is behind the government’s greater determination to improve how foreign investors, legislators and major corporations view Russia. It also explains why the country is so keen on attracting major sporting events such as the World Cup and a Grand Prix, and why, after 17 years of hesitancy, there is now greater urgency to be admitted into the World Trade Organization in 2011. Russia needs the investment capital and the expertise of Western companies if it is to break the stranglehold of oil. That is why the modern-day economic glasnost is real and will be sustained.

NEWS PIT-STOP AND WEEKLY FUND FLOWS

FINANCIAL ANALYSIS

by Chris Weafer

After the near frenetic pace of price growth in recent days, global markets are showing modest losses this morning while investors wait for another signal to justify whether they should be more focused on debt risk or on economic growth indicators. Monday is a holiday in the US (Martin Luther King Day) so many traders are also pairing positions ahead of the long weekend. The Nikkei is off 0.8%, China’s CSI 300 is down 1.7%, Korea’s market is up 1.0% and both India and Australia are almost flat in afternoon trade. 

A worse than expected US jobless claims report yesterday provided the excuse for slight profit taking in equities and in most commodities. The Dow and the S&P 500 both closed approximately 0.2%. How the markets close today will depend on whether today’s batch of more important economic indicators in the US, including December retail sales and industrial production, please or disappoint. The first of the big Wall Street banks, JP Morgan, will report its 4th Qtr numbers before the start of the trading in the US and that also will have a direct bearing on the trend in Moscow’s bourses later this afternoon.