Rus­sia ex­pects a surge in Asian in­vest­ment

China Daily (Hong Kong) - - VIEWS -

Rus­sia’s “pivot to East” con­tin­ues, which will make Rus­sia-China ties even more dy­namic through bi­lat­eral trade, cross-bor­der ini­tia­tives and cor­po­rate deals. Rus­sia’s eco­nomic re­cov­ery, along with Asian in­sti­tu­tional and pri­vate in­vestors’ de­ci­sion to ven­ture over­seas, is cre­at­ing a pos­i­tive trade and in­vest­ment en­vi­ron­ment.

The In­ter­na­tional Mone­tary Fund pre­dicts strong near-term Asian out­look. De­spite po­ten­tial tighter mone­tary pol­icy and curbs on do­mes­tic as­set prices, China’s GDP is still ex­pected to grow 6.5 per­cent a year and the coun­try is ex­pected to be a lead­ing cross­bor­der in­vestor by 2020, with global offshore as­sets tripling to nearly $20 tril­lion. And China’s global stock of out­bound foreign di­rect in­vest­ment, in­clud­ing in­vest­ment in cor­po­rate merg­ers and ac­qui­si­tions, and star­tups, may in­crease to about $2 tril­lion by 2020.

There is also a rapidly grow­ing pool of Asian cap­i­tal that must be in­vested. Ac­cord­ing to Price­wa­ter­house­Coop­ers, as­sets un­der man­age­ment in the Asia-Pa­cific re­gion will in­crease from $7.7 tril- lion in 2012 to $16.2 tril­lion by 2020. Pen­sion fund as­sets alone will grow by 9.5 per­cent a year to $6.5 tril­lion by 2020.

Sovereign wealth funds are rich cap­i­tal sources with di­verse agen­das and in­vest­ment goals. Along with in­sti­tu­tional in­vest­ment growth from pen­sion funds, they help gov­ern­ments seek greater adop­tion of de­fined con­tri­bu­tion plans and in­di­vid­ual re­tire­ment plans. Mu­tual funds, too, are be­ing fu­eled by the emer­gence of the mid­dle class in Asia. And rapid ac­cu­mu­la­tion of wealth in the re­gion is fur­ther in­creas­ing in­vestable cap­i­tal among high-net worth in­di­vid­u­als.

Be­sides, de­clin­ing yields have shifted Asian in­vestors’ cash to­ward eq­ui­ties and emerg­ing markets from their more com­mon fixed in­come and prop­erty in­vest­ments. Rus­sia’s re­turn to Eurobonds last year af­ter three years, too, is a re­flec­tion of Asian de­mand. Two deals, one in May and one in Septem­ber worth $1.75 bil­lion and $1.25 bil­lion were highly sub­scribed to by Asian in­vestors.

The Rus­sian cen­tral bank re­cently en­cour­aged in­vest­ment by cre­at­ing mar­ket in­fra­struc­ture for its first yuan-de­nom­i­nated OFZ bonds, di­ver­si­fy­ing fund­ing sources and in­creas­ing liq­uid­ity for Rus­sia. It also paved the way for Rus­sian cor­po­rate bond place­ments in China and pro­vided di­rect Asian in­vestor ac­cess. This shows Asian state and pri­vate cor­po­ra­tions’ in­vest­ment in­ter­est in Rus­sia is grow­ing steadily, with the fo­cus ar­eas be­ing nat­u­ral re­sources, trans­port and in­fra­struc­ture, health­care, real estate and agri­cul­ture.

From cor­po­rate com­pa­nies, we have seen many large trans­ac­tions and cross-bor­der ini­tia­tives in­volv­ing Chi­nese en­ter­prises, es­pe­cially in oil and gas. Such projects in­clude sup­ply agree- ments, as­set trans­ac­tions, fi­nanc­ing, and joint in­vest­ment. For ex­am­ple, Ros­neft and ChemChina re­cently agreed on a frame­work for fur­ther im­ple­men­ta­tion of the Far-Eastern Petro­chem­i­cal Com­pany project, while Gazprom and the China Na­tional Pe­tro­leum Cor­po­ra­tion agreed to build a tun­nel un­der the Amur River as part of the Power of Siberia gas pipe­line. And Chi­nese com­pa­nies have in­vested 16 bil­lion yuan ($2.4 bil­lion) in de­vel­op­ment projects in Rus­sia’s Far East.

Chi­nese in­vestors are also ac­quir­ing Rus­sian as­sets in part­ner­ship with ex­ist­ing Rus­sian share­hold­ers, and Rus­sian and Chi­nese banks would do well to sup­port such ven­tures. Leg­is­la­tion en­hanc­ing pro­tec­tion for foreign in­vestors in Rus­sia is mak­ing such ac­qui­si­tions pop­u­lar, im­prov­ing fi­nan­cial in­fra­struc­ture and ex­pand­ing business ties be­tween the two coun­tries.

More­over, Alibaba Group’s agree­ment to ex­pand re­tail and pay­ment op­er­a­tions in Rus­sia with sev­eral Rus­sian bank part­ners, in­clud­ing VTB, is sign of Asian com­pa­nies’ ex­pan­sion in Rus­sia. At the 2nd Eastern Eco­nomic Fo­rum last year, the Repub­lic of Korea’s Hyundai En­gi­neer­ing and Hyundai En­gi­neer­ing and Con­struc­tion signed a multi-bil­lion dol­lar deal with a sub­sidiary of Rus­sia’s Na­tional Chem­i­cal Group to build fer­til­izer pro­duc­tion fa­cil­i­ties in Na­hodka, Rus­sia.

As Rus­sia con­tin­ues its ac­tive en­gage­ment with Asia to de­velop its Far East Re­gion, we ex­pect more in­vest­ment from Ja­panese, ROK, In­dian and ASEAN com­pa­nies this year. Rus­sia has vast in­vest­ment po­ten­tial, and Asia, a strong and grow­ing pool of cap­i­tal. Rus­sia is home to mas­sive nat­u­ral re­sources but to use them we need in­fra­struc­ture in­vest­ment, and China and other Asian coun­tries have the ex­pe­ri­ence and ex­per­tise to build large-scale in­fra­struc­ture projects.

With strong govern­ment sup­port for closer Rus­sian-Asian co­op­er­a­tion, and mea­sures to make Asian in­vestors aware of in­vest­ment op­por­tu­ni­ties in Rus­sia, we are con­fi­dent that Asian flow of in­vest­ment into Rus­sia is likely to grow strongly in 2017 and be­yond.

... we are con­fi­dent that Asian flow of in­vest­ment into Rus­sia is likely to grow strongly in 2017 and be­yond.

The au­thor is the CEO of VTB Cap­i­tal in Asia.

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