The last few years have been propitious for emerging
economies. As the U.S. and Europe struggled to recover from the
deep, self-inflicted wounds of the financial crisis, emerging
economies around the world boomed and took on bigger and more
important roles in the global economy. During the first
quarter, for example, China attracted $95.9 billion in foreign
investment, despite the imposition of capital controls that
were designed to slow the flood of money.
And then, theres Russia.
Even as the price of commodities soared during the first
quarter, oil and resource-rich Russia was hit by a wave of
capital flight. An estimated $25 billion in capital left Russia
during the first quarter, according to Alexander
Perjéssy, senior economist with asset manager
AllianceBernstein. Capital flight is still a problem in
Russia, even though the country has benefited from higher
commodities prices. The rates of return are just too low,
[See the complete listing of the 2011
All-Russia Research Team.]
As other emerging economies have pulled ahead, Russia
remains stuck with relatively slow growth and overexposure to
the volatile commodities sector. Perjéssy expects the
Russian economy to grow 5.2 percent this year. That is up from
a disappointing 4 percent in 2010, thanks to the boom in the
price of oil and other resources. But it is well below the pace
of growth in China, which is forecasted by Chinas CICC
investment bank to grow 9 percent this year.
Meanwhile, inflation in Russia is 9.7 percent, according to
Perjéssy. That is much higher than inflation in China,
which CICC estimates at 5.4 percent.
As global growth slows and the boom in commodity prices ebbs
with it, there is little reason to expect Russian growth to
pick up. Having failed to take full advantage of the growth of
the last two years, it is now vulnerable to a deceleration of
the global economy.
One reason that China continues to attract capital: a high
rate of return in the fixed income area. The countrys
central bank is aggressively raising rates. The opposite is
true in Russia, where the overnight borrowing rate is 3.5
percent. Considering the nations high rate of inflation,
real interest rates in Russia are negative. The spread on a
basket of Russian debt is 215 basis points above the JP Morgan
Emerging Market Bond Index-Global. The spread on Brazils
debt is 179 and Chinas is just 166.