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Russia: Macroeconomic overview

Market Commentary

19 December 2014

Both sentiment towards Russia and prices of Russian assets have moved out of line with fundamentals, creating significant value. The reasons for the negative sentiment towards Russia are well-known. The Ukraine situation and sanctions have been important negatives and so has the fall in oil prices. Lately, as year-end approaches liquidity has declined significantly and ahead of us lie a few weeks of holidays during which few investors will go against the prevailing momentum in the Dollar, in commodities and in Russian assets, almost regardless of valuations. As a result prices are falling too far and price volatility has become far greater than normal. Sovereign and corporate investing is about avoiding defaults and identifying situations where prices have become seriously out of line with fundamentals, that is, where risk is incorrectly priced. Of course, if the country in question also happens to have strong fundamentals so much the better. This is the case of Russia today.

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