Global Investing

Moscow is not Cairo. Time to buy shares?

December 9, 2011

The speed of the backlash building against Russia’s paramount leader Vladimir Putin following this week’s parliamentary elections has taken investors by surprise and sent the country’s shares and rouble down sharply lower.

Comparisons to the Arab Spring may be tempting, given that the demonstrations in Russia are also spearheaded by Internet-savvy youth organising via social networks.

But Russia’s economic and demographic profiles suggest quite different outcomes from those in the Middle East and North Africa. The gathering unrest may, in fact, signal a reversal of fortunes for the stock market, down 18 percent this year, argue  Renaissance Capital analysts Ivan Tchakarov, Mert Yildiz and Mert Yildiz.

First of all, Russia’s youth unemployment rate is relatively low at 14 percent, compared to Syria’s 18 and 30 percent in Tunisia.

Secondly, the percentage of young men as part of its rapidly ageing population is low — those aged 15-29 account for 11 percent in 2009 versus a range of 13-17 percent in its fellow oil-exporting peers in the Middle East. This is particularly significant since the relationship between a country’s political stability and its proportion of angry young men has been well elucidated.

And although Russia’s GDP per capita is generally higher than those in the Middle East, its income inequality is more pronounced. Energy exports per capita are also lower in Russia. All this suggests there is room for the Kremlin to ratchet up government spending to cool public anger if it wanted to.

“A strategy of moderately higher government spending on the eve of Russia’s March presidential elections may help assuage current pressures. Russia’s 2012 budget already assumes that spending grows at higher rates than inflation, but we believe additional fiscal disbursement may well occur,” the Moscow-headquartered investment bank said.

“We think this should translate into credit growth rising faster than GDP, with the difference potentially spilling over to the stock market.”

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