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If you’ve been following our work you know that we are bearish on Russia (forgive the pun). Russia’s stock market is down 12% this week and confirmed a new low with its close today at 549.21, 22bps below its October 24th low.

There are a few more data points out today that confirm more pain is ahead for the energy-levered economy:

-Russia’s unemployment rose to 8.1% in January, the highest since March 2005 and disposable income fell 6.7%
-January industrial output declined by 16%
-Average monthly wages fell by an annual 9.1% in January to ~$418 (the biggest drop since August 1999)

Russia forecast a 2009 contraction of 2.2% yesterday, which we believe may be a conservative estimate. We continue to follow the political gesturing from President Medvedev and PM Putin and the fluctuation in the ruble, which has depreciated 3.6% versus the dollar this week and is down 22% YTD.

Yesterday China lent Russia $25 Billion in exchange for larger supplies of crude oil. Should the Ruble continue to slide against major currencies, Russia’s debt will continue to compound. With capital investment in Russia down 15.5% in January M/M Russia can only hope for a re-flation in commodity prices. Russian leaders would be wise to get to the bottom of an apparent sinking of a Chinese merchant ship leaving the port of Nakhodka last week by their navy –violence is bad for business no matter how much the price of oil rebounds.


Matthew Hedrick
Analyst