LUXEMBOURG
YVES KUHN

In 2016, the Moscow Stock Exchange (MICEX) posted stellar gains of 59%. The rouble was crowned as the currency of the year against the dollar, having gained 20%. Exchange Traded Funds with a Russian focus were amongst the best performing globally. Taking a bird’s eye view, the Russian economy seems to be making a resurgence.

However, this is largely stoked by the surge in oil price following the OPEC deal signed in September to cut production. From then until the end of 2016, Gazprom, Lukoil and OAO Novatek added 25%, 19% and 17%, respectively. Given the notorious volatility of oil prices and concerns on whether all OPEC members will stick to the deal, Russia becomes less of a sure bet.

Expectations of a softer Russian rhetoric from Trump have also boosted returns. But, for a country that ranks equal to Sierra Leone in 119th place on the Corruption Perception Index it will take more than improved ties with the US to entice investors. Perceived corruption seeps into markets. Russian oil giants with greater production, have significantly lower market capitalisations than foreign counterparts.

„Privatisation“ styles of the nineties which lined the purses of the elite seem to persist. In 2014, Bashneft, a flourishing oil company, was taken over by the State. Its primary shareholder was accused of money laundering (later released as charges went unproven). His shares were listed and despite a bid from Lukoil, they were sold to Rosneft, a state-controlled firm. The Economic Development Minister was later detained on charges of bribery for facilitating the sale. In 2016, when the State sold its 10.9% stake in Alrosa, the world’s largest diamond producer, a large proportion was acquired by the state-owned Russian Direct Investment Fund, in partnership with investors. The Government has cherry-picked six state-owned companies for potential privatisation in 2017. But will it also cherry-pick buyers? If not, will there be an appetite amongst international investors given the risks? Investors from abroad are exhibiting a preference for Russian debt over equities as it is generally viewed as less risky. Foreign ownership is now just below 27%, according to the central bank.

Russia’s reputation is also tarnished by a lack of corporate governance. In 2015, Deutsche Bank announced that it would end investment-banking activity there after an inside trader helped Russians send billions of dollars offshore, violating international money laundering law. Barclays and HSBC divested retail-banking activities. BNP Paribas and Goldman Sachs have downsized operations. Clearly Russia shall improve corporate governance and hospitality towards foreign firms operating in their jurisdiction to see true growth. However, policy status quo could be on the cards until after the
Presidential elections in March 2018 as Putin’s popularity is already at all-time highs. The planned summit between Trump and Putin in Reykjavík will change very little for investors.

BIL

Oldest multi-business bank in Luxembourg

Founded in 1856, Banque Internationale à Luxembourg (BIL) is the oldest multi-business bank in the Grand Duchy. Through several Luxembourg-based subsidiaries BIL operates in the Family Office (Belair House), alternative fund management (BIL Manage Invest), financial structuring services (Experta) and leasing (BIL Lease) sectors. Employing more than 2.000 people, BIL is present in the financial centres of Luxembourg, Switzerland (since 1984), Denmark (since 2000), the Middle East (since 2005) and Sweden (since 2016). The Bank is owned by Precision Capital S.A. – a Luxembourg public limited company - and the State of Luxembourg.
http://www.bil.com