Fund manager Tim Steinle attended the International Economic Forum in St. Petersburg, Russia last week and sent back some observations to our investment team.
On Russian Steel: Despite the recent appreciation of the ruble, Russian steelmakers are still some of the lowest cost producers. Russian steelmakers are facing stiffer competition from other Eastern European countries like Turkey and the Ukraine. It’s possible only a third of Russian steel exports to China are consumed there while the rest is either stockpiled or distributed throughout Asia.
On Russian Banks: Non-performing loans are still in the single digits in Russia and restructured loans make up about 20 percent of all Russian loans. However, a large portion of these loans were restructured to convert dollar-denominated loans into ruble-denominated ones.
On Shipping in Russia: Often a good barometer of economic activity, the shipping industry in Russia is struggling. Export volume is down 20 percent while domestic shipping has been hit even harder—down 50 percent. One industry executive, responding to a question on “green shoots,” said they’ve not seen any meaningful pickup in demand.
One of the highlights of the conference was President Dimitry Medvedev’s keynote address, which had several key takeaways:
- Protectionism in a global economy internalizes problems—it doesn’t solve them
- Tax increases will slow global economic growth
- Troubled banks can be recapitalized with government funds. Medvedev rejects the idea of a “bad bank” holding all the toxic assets
- A new reserve currency is needed that relies less on the dollar.
Despite the speech, which attracted worldwide press coverage, Medvedev remains overshadowed by his predecessor, Vladimir Putin.
That didn’t change this week—while Medvedev was in St. Petersburg, Putin was being hailed for humiliating a billionaire industrialist on television and ordering him to pay back wages to his factory workers. Reuters quoted a top diplomat as saying that “Medvedev is up in the clouds and Putin is running the show.”