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15 April 2011

Russian bonds lure Asian investors

SINGAPORE : Asian investors are looking further afield in search of good returns and are expected to increase their exposure in the Russian bond market.

Investment experts said Russian bonds are in demand because of the rising value of the Russian currency.

The shift in government policy to attract more investors is another draw, said experts.

Emerging from decades of political turmoil, Russia has yet to deepen its capital market.

But the recent strengthening of its currency - the rouble - on the back of rising global oil prices is giving Russia's local debt market a boost.

Nikolay Podguzov, Head of fixed income strategy, VTB Capital, said: "If we put it in international perspective, I think the most interesting part of the Russian local market is a particular interest to get exposure in the rouble. The rouble has been the best performing currency in the world, at least this year."

The rouble has so far gained by almost 8 per cent against the US dollar, with the exchange rate last settling at 28.24 roubles to the dollar.

This would mean that Asian investors who hold Russian bonds have the potential to earn higher returns from the strong currency apart from the coupon payments and capital value of the bonds.

Russian President Dmitry Medvedev's economic policy shift should also support the local debt market, according to an economist.

Alexey Moiseev, Head of Macroeconomy Analysis at VTB Capital, said: The new focus is switching from what economists call demand-side management to supply side - basically improving investment climate, making Russia more investor attractive ...

"That's exactly what the government has already started about two weeks ago. President Medvedev has announced 10 important investment initiatives which have very specific timeframe to be delivered on improving the investment climate in Russia.

One sign that Russian debts are already striking non-resident investors' fancy was the successful debut of rouble eurobonds last February, according to VTB Capital.

The Russian government was able to raise 40 billion roubles, or 1 to 1.2 billion dollars, from floating seven-year debts that yielded 8 per cent.

VTB Capital estimates that Asians account for 15 to 20 per cent of total Russian Eurobond placements.

It said investors from Singapore, Taiwan, Hong Kong, and China could be potential buyers of Russian local debt.

Still, some investors say that market sentiment towards Russian debt issues remained mixed.

DWS Investments, which has exposure to the Russian capital market, said Russian bonds offer investors a cheap investment grade opportunity.

Other market players, however, said that while Russian bonds are attractively priced, Russia's capital market is relatively new and its currency may be volatile.

- CNA/al

Corporate Communications VTB Capital