The Russian Federation First Mercantile Fund had once again an excellent quarter, rising 11.5% and significantly putperforming the RTSI Index by 300 basis points. On a YTD basis, the Fund is now up a staggering 44%

In the middle of the month, the Russian government made a surprise announcement, postponing privatisation of Bashneft. We believe this decision was driven by a combination of two factors – unwillingness to allow Rosneft to participate in the tender (as selling Bashneft to another state company undermines the very idea of privatisation) and lack of funded private buyers with real interest in Bashneft. The government indicated that they will revisit the issue later this year.

Otherwise, there was no major news on the economic front and the performance was purely due to Russia being a high beta play on what was a very good quarter in general in EM. The possibility of sanctions lifting has faded away, particularly given that Clinton (who is known to be rather averse to it) is ahead in the polls to be the next US President. Nonetheless, it is encouraging to see a substantial recovery in local equity markets.

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