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Certainty... ?????? update

02 July 2020 by jbchevrel

Foreign medias don’t praise Mr Putin, but foreign investors do, as he guarantees some degree on certainty over business and investment conditions in Russia. Today, Russia 5y CDS has unwound the recent under-performance it had displayed vs peers, as President Putin won an endorsement of his bid to extend his rule potentially to 2036 (for reference Putin was first elected 2000). This positive result for the Putin camp came even as some polls show his approval ratings near historic lows (59% earlier this week). 78% voted for his proposal, turnout 65%. Some polls point to growing public discontent about deteriorating living standards, and significant inequalities but that has failed to translate into political developments yet. The strategy of the government to spend little on COVID crisis compared to other countries is a positive for CDS, as discussed previously in this blog. Today Reuters reported that Russian PM said the government would consider increasing budget spending by P1.8T ($26B) to fight coronavirus and support economy. Some economists had pointed out that local regulations around public spending have hindered Russia’s ability to ramp up fiscal stimulus. Other than that, the brighter picture on energy/base commodities that Russia exports is also positive in the short term. Russia CDS closes 97 (-6). That is a 86% retracement in the premium, from the COVID wide (reference being 2/21 close). Indeed, Russia 5y CDS had closed at a peak of 300 on 3/18. The fact that post-GFC tights in Dec 19 was 50 area, it is probably fair to say that further strength from here is on cards.