Three reasons for the outflow of capital abroad
Over the past month, investment funds focused on Russia withdrew about $ 150 million from the country. It is noted that the outflow for the last week of October amounted to $ 63 million. This is almost twice the figure of the previous week, when $ 32 million was withdrawn by investment funds.
Experts also predict a further continuation of the outflow of capital for at least the next two years. The transaction between Rosneft and TNK-BP, contrary to expectations, could not prevent the withdrawal of funds from the Russian Federation. Recall that on October 22, Rosneft announced the takeover of TNK-BP, which makes it the largest oil company in the world.
According to Vedomosti with reference to the EPFR, there are many reasons for this situation. However, among them three main ones can be distinguished. The first such reason is the high dependence of the Russian economy on fluctuations in oil prices, which greatly increases the risks of investors. The connection of capital outflows with unfavorable trends in the oil and gas sector seems natural. But a number of experts rightly point out the fact that no lasting correlation between the increase in the cost of oil and capital inflows has been observed in recent years.
Since 2009, the relationship between these two factors is not direct, and according to some reports it is completely absent. Investors no longer see rising oil prices as a guarantee for themselves. A decrease, respectively, is not for them a sufficient reason for active fears. In this regard, it should be noted that the Russian market in general is one of the most risky options for investing money. Not only due to the dependence of the situation on it on the cost of oil, but also due to the unfavorable business climate associated with a high level of corruption, imperfection of the tax system and state policy that does not always take into account the interests of business. With that said, the degree of importance for investors of fuel price fluctuations seems even more controversial. But the importance of the other factors mentioned is clearly underestimated.
The second reason is the fact that the European Union is today the main trading partner of Russia. And a significant proportion of exports are in the eurozone. According to estimates, this share is at least 50% of all exports. Meanwhile, at the moment, the economic situation in the European Union can hardly be called favorable. The global business community is awaiting the decision of the three international creditors of Greece (the European Commission, the ECB and the IMF) to provide it with another tranche of assistance. However, there was no solution, and the community froze in indecision. In the EU itself, the situation with investment funds is also not always favorable. However, a decrease in assets is observed there for the most part only in troubled countries: in Greece, Italy, Bulgaria, Spain, Slovenia and others.
And, of course, the third reason for the massive outflow of capital from the country in the last month is the uncertainty that existed until November 7, when the results of the US presidential election that were held the day before became known. Given that the candidates – Barack Obama and Mitt Romney – were flush to the last, it was not possible to make any reliable predictions about the victory of any of the applicants in advance. Meanwhile, the choice that the Americans will make was extremely important for the global economy, in connection with the fundamental difference in the economic programs of the candidates. Recall that the position of the democrat Barack Obama was reduced to the need to increase the role of the state in the market, while the Republican Mitt Romney insisted that state intervention in economic mechanisms beyond the minimum necessary is unacceptable.
It is worth noting that a number of political analysts indicate that many statements were made by candidates solely to emphasize differences from each other. However, 60% of Americans called the economic program decisive in their choice. Investors tacitly agreed with its importance as well, halting in indecision up to the announcement of the voting results. In general, the victory of Obama by experts is evaluated positively. As a whole for the world economy, since it guarantees greater stability than Romney could have ensured, so for Russia in particular, since Obama, in accordance with his election program, is set to improve relations with the Russian Federation, while Romney sees it is more likely an adversary and a threat than an ally.
It is worth noting that the withdrawal of capital by investment funds on the eve of the country’s most significant election is generally a fairly frequent and natural phenomenon. So, in particular, at the end of October 2012, it happened in Ukraine, where the elections to the Verkhovna Rada held on October 28 provoked a noticeable outflow of capital.