Russian Federation First Mercantile Fund gained +18.7% in the 3rd Quarter of 2017

Despite all existing challenges, the Russian economy is recovering after two years of recession. The effective policy of Russian authority, higher oil prices, easier financial conditions and improving confidence has resulted in economic growth in 2017. In the first half of the year, GDP grew by 1.5% year over year (0.5% in 1Q and 2.5% in 2Q), inflation decreased to 3% and gold and foreign currency reserves rose to US$ 424 billion by the end of the quarter.  Consequently, the Russian stock market showed a significant growth during the quarter.

The MSCI Russia Index increased by approximately 15% for the quarter while the Fund soared 19%, bringing the return for the year to +0.7%.

Looking ahead, the outlook for Russian equities and the economy is positive for the following reasons:

  • The Russian economy has become more resilient and stable and can sustain decreasing oil prices and sanctions implementation.
  • Current oil prices are comfortable for Russian economic growth.
  • Risk of lower oil prices has diminished because OPEC, combined with other major oil producers, cut output.
  • Significant gold and foreign currency reserves.
  • Low inflation and as a result of this the Central Bank has cut rates four times this year for a combined year to date cut of 150bps; interest rates now stand at 8.5%.
  • It is expected that GDP growth may reach 2.1 % in 2017.
  • The Russian market capitalization is only US$ 584 billion, which is less than Apple’s.

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