By Andrei Skvarsky.

AGC Equity Partners has acquired $175m interest in a major Russian generating company in what is seen as the largest-ever Middle East investment in Russia.

The London-headquartered firm with a team in the Middle East is part of an international consortium that has bought a 26.43% blocking stake in Italian-controlled Enel OGK-5 from the Inter RAO UES energy company.

The Russian Direct Investment Fund (RDIF), a sovereign fund set up last year to promote private equity investment in Russia, is another member of the alliance, according to statements from RDIF and Russia’s Renaissance Group today.

The other participants in the alliance are Macquarie Renaissance Infrastructure Fund and Xenon Capital Partners’ Rusenergo Fund.

The deal, which has just been closed, has been described as a “landmark transaction” by RDIF chief executive Kirill Dmitriev.

RDIF and Macquarie Renaissance each invested $137.5m in Enel OGK-5. Xenon’s contribution was $175m.

“This consortium of private equity investors has acquired a blocking stake in the premium asset of the Russian power sector at an attractive valuation,” the statements quoted Dmitriev as saying.

AGC co-chief executive Walid Abu-Suud said his firm was “delighted to be executing our first transaction in Russia, a high-growth market with under-tapped investment potential”.

Both he and Macquarie Renaissance chief executive Damian Secen spoke highly of Enel OGK-5, a company controlled by Italy’s Enel, Abu-Suud describing it as a “world-class energy asset” and Secen crediting it with being “a high growth, high quality asset, with an excellent management team”.

By Dieter Wermuth, Chief Economist, Wermuth Asset Management.

As Putin has assumed office once again, dark clouds in the form of plunging oil prices and a recession in Western Europe are hanging over him. His third term as president is unlikely to benefit from a benign external environment. Investors are reminded that Russia has a high-beta economy that is hostage to the oil price. Historically, revolutionary situations develop when a government is unable to meet the aspirations of its rising middle classes. Commodity prices are still very high and generate correspondingly high household incomes in Russia, but what matters most in terms of political stability is whether prices and thus living standards will keep rising.

Expectations will probably be disappointed. At an annualised rate of about 2¼ per cent, global real GDP at market exchange rates expands well below trend which suggests that inflation rates are on the way down. This includes commodity prices. Slow global GDP growth has in the past led to a decline or stagnation of energy consumption. There have been four years – 1981, 1982, 1993 and 2009 – when it actually fell in response to sub-par GDP growth. The risk, from a Russian point of view, is that it could happen again this year. This is the most fundamental reason why oil prices are on the way down. Only clear signs that global economic growth will accelerate again will stop the trend. They are still missing.

As long as the outlook for oil prices is negative, both the Russian stock market and the exchange rate will be under pressure. The government budget which had shown a small surplus last year will move into the red again, because revenues are largely a function of the oil price – by how much depends on the actual oil price. Since government financials remain extremely sound, there is actually room for manoeuvre on the expenditure side. Infrastructure stocks, including utility stocks, may become the next investment story.

Inflation will remain low (CPI in April was 3.6% y/y): the negative effects of the depreciating rouble and the coming increase of electricity prices will be compensated by weaker overall demand and falling food prices. The central bank keeps interest rates at elevated levels in both real and nominal terms and could cut them if necessary, in case the economy slows more than expected. Interest rate-sensitive stocks would benefit. A few names will also profit from the lower rouble.

By Jim O'Neill, Chairman, Goldman Sachs Asset Management.

This past week, I spent 3 days in the US, in New York and Chicago. The main purpose of my NY visit was to host our 2^nd GSAM Growth Markets Summit, which was quite an event, with many interesting speakers, panels and a great list of clients. Thank you to everyone who participated in making it such a success. I have done hundreds of these events in my career, and frankly, this one was right up there.

In terms of the concept of the Growth Markets, the event couldn’t have had been better timed. Literally an hour before the opening dinner, Apple released its Q1 earnings and it was a blockbuster. Even I, as so-called Mr. BRIC, was blown away by their staggering sales to China. Is there anyone out there that still believes the Chinese consumer isn’t important?

It became my obsession of the week. In Chicago, I had a number of group meetings and in each of my meetings, I asked the audience how many owned Apple stock. Three of the meetings had quite large numbers, and the answers varied, but it was usually at least 20 pct.  In one meeting, it was closer to a third. I followed up that question with another, “how many of you realized you were making a bet on the Chinese consumer?” The answers to that were very small. But that is what it was in Q1. Twenty percent of the company’s astonishing revenues now come from China. It is literally fantastic. The company’s own statement alluded to the remarkable opportunity afforded by the Chinese consumer, and suggested many others could benefit dramatically too.

In much of the market and media discussion I followed last week about Apple’s future and its value, not surprisingly, many worry that they may end up with the same fate that came across other past market champions and one can see why.  The challenge of sustaining this degree of growth is not easy. But if you look at Apple in the context of the Goldman Sachs 2050 scenarios for China and their consumer, the potential sales are multiples are what they are today.  And, if the brand can stay fashionable, wow.

As I said at the conference and to virtually anyone I met in the US, I can only hope that someone in Washington close to both Presidential hopefuls paid attention to those results.  After this, I can’t quite see how any US political figure can seriously contemplate trade sanctions and accuse China of unfair trade behavior and persist with – in my view, increasingly irrelevant – exchange rate issues.

Our Growth Market Conference.

As I mentioned, we had a remarkable array of guest talent in attendance, ranging from ex central bank leaders, Greenspan and Meirelles, to a panel including Divya Keshav, a woman from GS’s exciting 10,000 Women initiative.  It would be unfair for me to try and summarise what each speaker said, but I can repeat the two core themes I presented at the start to frame all the subsequent discussions.

First, a number of so-called emerging economies are now so big, that it is ridiculous to think of them as traditional emerging markets. Currently, we think this applies to a group of 8, each of the 4 BRIC countries, Brazil, Russia, India and China, along with Indonesia, Korea, Mexico and Turkey. Collectively, they are already 25 pct of the world economy.  And, in the decade we have started, their combined GDP will contribute more than 2 times that of Europe and the US put together. At GSAM, we call them Growth Markets.

China, at the core of them, alone will contribute more than the US and Europe together (assuming 8 pct real GDP growth). As you have seen me write before, China is currently contributing the equivalent of another Greece every 11 and ½ weeks.  But I also threw in that they are creating another Spain every 15 months.  And, the 4 BRICs collectively last year nearly created the equivalent of a whole new Italy in one year. Italy is the 8^th largest economy in the world, and

By Ian Pryde, founder and CEO of Eurasia Strategy & Communications in Moscow.

Vladimir Putin is unlikely to deliver full-blown reform, the only way to dampen the impact of the predicted drop in oil prices on an economy heavily dependent on oil exports, Ian Pryde argues in his article, first published on the Russia Beyond the Headlines website

 With Vladimir Putin's inauguration scheduled for May 7, 2012, a number of investment analysts in Moscow have reached a rather odd conclusion about the future Russian president's economic policies.

Most observers rightly argue that not only have the go-go years ended, but that Russia's economy also faces major threats going forward. One scenario, based on low oil prices combined with greatly increased state spending, envisions the development of a twin deficit on the federal budget and current account as its huge trade surpluses disappear, forcing the country into some combination of devaluation, increased borrowing and/or a great reduction or even disappearance of its massive currency reserves.

These risks have led some analysts to the non sequitur that since Russia needs reform to avoid these problems, there will indeed be reform.

This is a strange enough conclusion to make with regard to developed countries - the UK, United States, Italy, France and Japan spring to mind - but it is bizarre in the Russian context, where reform has consistently been derailed since the time of Peter the Great because the rulers consistently pull back from seeing things through for fear of losing control.

Three factors speak against full-blown reform in Russia instead of the usual muddle-through variety: Russia's history, Putin's personality and economic and political views and Russia's current political and economic structure.

Dmitry Medvedev's modernization attempts, the Skolkovo project, and current official propaganda are all eerily reminiscent of the 1970s and 1980s. The first oil shock in 1973 ushered in a period of high energy prices and gave the Soviet Union its best-ever chance of real reform. During the perestroika era, the talk was of switching from extensive growth based on increasing labor inputs to intensive growth based on more science and technology. But when oil prices slumped in the mid-1980s, they seriously undermined the efforts of Mikhail Gorbachev to move in that direction.

And just as the country spectacularly squandered its chances for reform in the 1970s and 1980s, Putin made exactly the same mistake between 1999 and 2008 - despite increasing warnings from the Russian and international policy communities as the 2000s progressed. He simply ignored them, just as the Soviet Union's leaders ignored them in the 1970s and 1980s until it was too late.

 Most Russian and international economists agree that after a bout of positive changes during Putin's first term, the impetus for reform and economic diversification has long since hit the skids and the country has became more dependent than ever on commodity exports.

But during the election campaign, Putin and others argued that the current economic model had now exhausted its usefulness, so policy changes would indeed follow.

This is flat wrong - the model was flawed from the start, and the high earnings from energy should have been used to institute far-reaching change while the going was good, for instance, to develop small and medium-sized businesses. But this was not done, and policy slippage combined with a failure to understand the global economy, led Russia to experience the biggest drop in GDP of all the G20 countries in 2009 as the Great Recession hit the global economy.

The Putin 1.0 era was characterized by increasing hubris on Russia's part and the frequent subordination of pragmatic economic aims to more authoritarian traits as Putin and his security-minded colleagues - the siloviki - attempted not only to reassert Russia's position internationally, but also to re-establish order and reassert Kremlin control over the economy after the perceived chaos of the 1990s.

But this entailed a huge increase in red tape and the numbers of bureaucrats - and in the Russian context, that was bound to lead to massive corruption. So the small and medium-sized sector was smothered in the cradle.

Putin periodically engages in populist anti-business rhetoric, but at the same time he is keen to retain his freedom of action to solve problems and follow policies as he sees fit.

The upshot is that Russia has failed to convince Russian and international investors that it is ruled by the law and not by men. Even Russian investors believe that rules and regulations can be changed at the drop of a hat, so they don't invest to anywhere near the extent the country needs and prefer to park their money offshore, despite the flat-rate income tax of just 13 percent.

Much-needed supply-side reforms such as reduced red tape are one obvious answer, but that runs the risk of greater freedom and independence for businessmen and citizens - and a subsequent loss of Kremlin control. Back to square one!

Putin has thus boxed himself into a corner and now argues that growth of 4-5 percent is still good in the more difficult circumstances. At first glance, this looks right. Mature, developed countries at the top of the S-curve inevitably grow slowly, while poor countries like China and India at the bottom are experiencing much faster growth from a low base. Russia is somewhere in-between.

But there is virtually no question that the right reforms would result in huge prizes both for Russian and international investors.

Gazprom is an excellent example. Slava Rabinovich, CEO and founder of Diamond Age Capital Advisors Ltd., recently pointed out in the Russian edition of Forbes, that international portfolio investors stampeded for the exit following Russia's 1998 ruble devaluation and sovereign default - but since then, Gazprom's shares have increased fiftyfold!

And yet, many analysts argue that Gazprom is not run on commercial lines, since it is an arm of Russian foreign policy. But with around one quarter of the world's conventional (non-shale) gas reserves, Gazprom should be worth far more than Exxon, or indeed Apple.

So the question arises - why should it be different this time round? Can Putin 2.0 really convince Russian and international investors that the country is serious about reform and that they can safely put their money into the country?

A big problem is that for every statement of serious intent to improve things, there is another one in the opposite direction. When asked about Russia's huge levels of corruption on the BBC World Service program Hardtalk last week, Putin's press secretary Dmitry Peskov gave one of Russia's two stock answers to foreign criticism: the criteria Transparency International used to reach its assessment were incorrect. The other stock answer is that corruption happens everywhere - as if it had reached anywhere near Russia's massive systemic level in any developed country.

This approach not only does nothing to advance Russia's cause, but also shows international politicians and investors that Russia simply doesn't get it: it can't make the right changes because it doesn't understand international politics and business.

In fact, Putin's biggest mistake since becoming prime minister in 1999 is one that analysts and investors virtually never mention explicitly. They talk about improving the investment climate, establishing an independent judiciary and developing a responsive political system. But this is all part of the broader trust needed between rulers and ruled. A major reason for the unprecedented wealth and living standards in developed countries is that they are invariably high-trust societies. Despite all the current problems and dissatisfaction, trust there is still incomparably higher than in Russia, where, after Putin's 12 years in power, distrust between the state and the people in Russia remains as great as ever. Business still sees the state as arbitrary and unpredictable.

Russia's economy hardly faces collapse. Indeed, the government's privatization plans sound promising, while domestic businesses should become more competitive after theyare exposed to greater competition following Russia's accession to the World Trade Organization in August.

But without fundamental changes, it is hard to see how the country can move up several gears from muddling through as "The Land of Limited Possibilities" to fulfilling its huge potential.

That would require that Russia under Putin 2.0 finally start showing domestic and international investors that it is serious about business and makes clear that its laws are no longer, in the words of Shakespeare, "more honor'd in the breach than the observance."

Given Putin's personality and peculiar worldview, this is hard to imagine. But if Putin doesn't make such changes, he is likely to see Russia being increasingly sidelined by China, which according to Western observers will be bringing path-breaking - and commercially successful - cutting-edge products in mobile telephony and bio-tech onto the global market in the next few years.

Link to original story - http://tinyurl.com/89mah6u. 

Jim O'Neill, Chairman of Goldman Sachs Asset Management

 By Jim O'Neill, Goldman Sachs Asset Management.

This week, I was severely tempted to pursue the analogy of comparing 2012 with 2011 and 2010, especially as it relates to most peoples persistent belief that we live in a US-dominated world.  But these two gentlemen stopped me. Thanks to Adam and Masaaki . Mind you, if weekly job claims rise again next week in the US, it might prove irresistible more on that below. Or more likely, by the time of my weekend Viewpoint, it will perhaps be too late as the worlds scribblers will be all over the idea. Or will I?  Because in fact, while next weeks job claims are by nature really important, the 27^th BOJ board meeting and policy decision is also rather important.  I think that this might create some fun and games. As for Adam Posen and the UK, whoever would have thought that irony could happen:  Adam abandoning his dovishness at the same time as perhaps Shirakawa-san is becoming one?  (I exaggerate, of course, but you get my drift.)  Anyone for GBP/Yen? Or GBP/Swissy?

Markets and the Future.

Last Thursday, I had a rather odd day stuck in a building (a rather prestigious one, I might add) with a group of leading economists and thinkers to discuss the future of mankind this decade, financial markets and, in particular, computerized financial markets. It was a bit of a weird experience, but one that I found rather amusing, if somewhat of a luxury and hard work. Anyhow, the group was tasked with brainstorming about what the future held in terms of growth or no growth, and more or less openness of markets. From what I could tell, the hosts had pretty much predetermined that whatever we said, computerized financial market investing and price discovery would rise, which was a source of debate amongst some of the more noisy of us. But it was also interesting to hear in gory detail just how gloomy most people are.  But I kind of knew that anyhow.  Which, yet again, brings me back to the fact that I would rather trust the mean-reverting tendencies of the currently rather high Equity Risk Premia (ERP) than all of that kind of stuff, as interesting as it was. I left that lengthy meeting thinking once more that it wont take much good news for equities to rally.

The IMF and China.

By Andrei Skvarsky.

Russia’s Renaissance Group has appointed two of its top bankers, Alexander Merzlenko and Nick Andrews, as partners.

Merzlenko joined Renaissance Capital in 2000. In 2009, he was appointed as RenCap’s head of Russian investment banking and financing, and in 2011 given an additional role as Renaissance Group’s deputy CEO for Russia. He has more than 15 years’ experience in investment banking in Russia, the Moscow-based investment group said in a statement.

Andrews joined RenCap in 2010 as global head of equities and was promoted last year to global head of markets, overseeing fixed income, currency and commodities (FICC), and equities. Andrews has more than 20 years’ experience in cash equities and derivatives, equity capital markets and global emerging markets.

“Alexander and Nick have made significant contributions to the development of Renaissance Group’s pan-emerging markets businesses,” the statement quoted Renaissance Group CEO Stephen Jennings as saying. “We are confident that their knowledge and guidance will serve

By Andrei Skvarsky.

Russia’s oil and gas sector would be the wrong choice for an investor these days, according to Dieter Wermuth, chief economist at Wermuth Asset Management, a Russia-focused German fund manager.

With global economic growth slowing down significantly, a world oil price that has quintupled since 2003 makes no sense economically and mainly reflects the risk of a war between Israel and Iran, Wermuth argues in an article in Business New Europe Investor Weekly. 

“I am still convinced that oil will cost something like $90 by the year-end,” he says.

Moreover, Russia’s oil and gas industry is going to be taxed more heavily, he warns.

So investors would be best-advised to keep clear of Russia’s oil and gas sector and go for telecoms, consumer goods, retailers and importers instead, Wermuth concludes.

“Conservatively managed banks such as Sberbank are also attractive, given that the country is extremely underbanked,” he says in his article, which is entitled “Oil price will not rise anymore in the near term” and published in the weekly’s April 2 issue.

In comments to EmergingMarkets.me, Wermuth said that “nose-diving” prices for natural gas would also “pull down oil prices at some point”.

By Andrei Skvarsky.

Aubreck Leung, a London-based financial services executive search firm, has hired James Hicks, previously an employee at Russia’s Trust Investment bank, as head of emerging markets research, the British firm’s managing partner Joseph Leung told EmergingMarkets.me.

Hicks was based both in Moscow and in London when working for Trust.

“We are delighted to have James in our team and feel that this hire underscores our commitment to serving emerging markets clients,” Leung said.

Aubreck Leung was founded in January this year by Leung, who had previously spent 16 years as a senior manager at Solomon Page, a New York-headquartered executive search firm.

Troika Dialog today announces the appointments of Dirk Werner and Angelo Morganti as Managing Directors of the Investment Banking Division.

Dirk Werner brings 22 years of global M&A experience to Troika Dialog. He has been a senior banker with leading international banks including Bank of America Merrill Lynch, Morgan Stanley and Lehman Brothers. At Bank of America Merrill Lynch he was a senior M&A banker, leading the execution of large international transactions in the Telecoms, Media & Technology sector in EMEA and at Lehman Brothers he was Head of M&A for Germany. Dirk has worked on global teams in London, New York and Frankfurt and brings deep industry and M&A execution experience to the Troika Dialog platform. Dirk also worked as partner and member of the senior team at Millennium Finance Corporation Ltd. in Dubai where he helped develop the firm’s fully integrated investment banking model, building the company from a starting position of 8 full-time professionals to over 30 in less than two years.

Angelo Morganti joins Troika Dialog from Renaissance Capital in Moscow where he was a Managing Director and Head of Equity Corporate Finance. While at Renaissance Capital, Angelo also held the position of Head of Investment Banking for Central Asia. Angelo started his 14-year investment banking career as an associate at Citigroup where he spent his final two years as a Director of the Equity Corporate Finance Team in the European Investment Banking Division.

These appointments are the latest in a series of senior hires as Troika Dialog expands its team and prepares for the potential opportunities of the new era as part of Sberbank. Namely, Troika Dialog has appointed Rob Leith as Global Head of Investment Banking and Global Markets, Todd Berman as Head of Investment Banking, Chris Weafer as Chief Strategist, Olga Klimova as Global Head of Equity Sales, and also James Corrigan and Maxim Safonov as Managing Directors in Investment Banking and Anton Malkov as Director in Investment Banking.

In line with VTB Capital’s global expansion strategy, James Williams, Head of Middle East Equity Trading, Nick Bye, Middle East Equity Structuring, Karim Nsouli, Head of Middle East Cash Equity Sales & Sales Trading, Ali Salam, Head of Strategic Equity Distribution – Middle East and Ziad Al Amin, Head of Multi Product Origination and Distribution – Middle East, have joined the VTB Capital team in Dubai to strengthen the company’s growth in the region. The enlargement of VTB Capital’s Middle East and Africa team headed by Makram Abboud, CEO Middle East & Africa and Co-Head of the International Multi-Product Origination and Distribution group for VTB Capital plc, is a part of the company’s strategic development plans to enhance its operations internationally.

The new employees will be responsible for driving VTB Capital’s success in global markets. Before joining VTB Capital, they held senior positions in such distinguished financial institutions as Credit Suisse, Deutsche Bank and UBS. Their achievements include significantly increasing the growth of their companies’ business in the Middle East.

Licensed by the DIFC in May 2009, VTB Capital’s office in Dubai has always been the main hub for the expansion of the company’s investment business across the Middle East and Africa. It offers a full range of investment banking and advisory services, including fixed income and equity sales, commodities, structured products, M&A, ECM and asset management.

Renaissance Asset Managers (RAM), the specialist asset manager focused on emerging Europe, Russia and Africa, has appointed Barbara Rupf Bee as CEO. Rupf Bee will lead RAM’s strategy in emerging and frontier markets, overseeing 30 investment professionals and assets under management of $2.8bn. RAM also announced that Plamen Monovski has been named President, in addition to his responsibilities as Chief Investment Officer.

The appointments mark the further expansion of RAM’s executive and fund management structure, following the Firm’s recent acquisition of three emerging Europe funds from Griffin Capital Management, adding four new fund managers to RAM’s team and bringing its assets under management to over $2.8bn.

Rupf Bee joins RAM from HSBC Global Asset Management, where she had been Global Head of Institutional Sales since November 2007. Prior roles at HSBC include CEO of HSBC Alternative Investments Ltd, London; investment advisor to HSBC’s fund of hedge funds and institutional client portfolios (2005-2007); and Global Head of Alternative Business Development & Sales at HSBC Private Bank (2003-2007). Prior to 2003, Rupf Bee held senior positions at Union Bancaire Privée, Zurich; the Julius Baer Group; creInvest AG; and J.P. Morgan’s international Private Banking division.

Plamen Monovski, who joined RAM in January 2010, formerly co-managed the BlackRock Emerging Europe Fund, a pre-eminent specialist fund with assets that reached $9bn, winning awards in 26 countries and a AAA rating from Standard & Poor’s. He later went on to head BlackRock’s global emerging markets team, which managed a multitude of portfolios for blue-chip global institutions.

Dmitry Ivanter has been appointed as the Chairman of VTB Capital Investment Management Executive Committee. The Committee is tasked with the strategic and operational governance of VTB Capital’s Investment Management business, one of the three main arms of VTB Capital’s business.

The VTB Capital Investment Management Executive Committee consists of a Chairman, Global Head of Portfolio Management, Global Head of Private Equity, Global Head of Venture Capital, CFO and COO. Previously Mr. Ivanter was COO of VTB Capital Investment Management. He will retain all COO responsibilities until such time as a suitable successor is appointed.

Under Vladimir Androsik, the Investment Management business increased from RUB 13.6bn in mid-2010 to RUB 79.9bn by the end of 2011, with all business lines growing faster than the market. After a year and a half of successfully leading the Investment Management business at VTB Capital, Vladimir Androsik is transferring to take a strategic leadership role within VTB Group.

Jim O’Neill, Chairman, Goldman Sachs Asset Management.

I spent most of this past week in New York, and to my slight surprise, there appears to be some shift in the mood about the state of life. Whether this is because it is the start of the year, asset prices have been perkier, or there is some recognition that the US economy and other parts of the world are not as bleak as the second half of 2010 is not so clear. It was certainly quite nice to hear and, in my judgment, is more reflective of what is going on.

The US improvements.

I have talked in many Viewpoints since last August that I thought the US recovery would be stronger than people realized.  Most of the additional data being published gives fresh support to this view. A renewed drop in weekly job claims and some further better-than-expected housing data occurred this week. These releases coincided with more signs from the business world and beyond that the economy may be improving. Four different areas pricked up my ears. The first is repeated evidence of a pick-up in commercial bank lending from their Q4 results and, with it, the reported money supply from the Fed. The second is a changing mood about the housing market, in addition to a better tone of some of the data. Third, there is a lot of growing marginal evidence about US manufacturing becoming more competitive, including another interesting story in the US edition of the FT on Wednesday. And fourth, there is considerable talk about the rapidly-improving domestic energy supply situation in the US which, in itself, is helping boost the domestic industrial plans of some of corporate America. All four of these items were things I suspected were happening, but it was quite refreshing to hear so much talk about them.

About the only thing left to sort out is the staggering amount of wasted time one encounters going through passport control at JFK these days...

I continue to believe that the consensus on the 2012 US outlook needs to get a bit cheerier since most professional forecasters have not yet captured this mood. There is a view that much of the improvement has been seasonal. While possible, I have increasing anecdotal evidence and belief to suggest it is more. We are still forecasting 2.5 pct real GDP for 2012 at GSAM, which is above consensus. Outside the US.  China.

The mood I encountered about the world outside the US wasn't quite as dreadful as I had heard on previous visits, with a couple of people telling me that the ECB's 3-year LTRO was a "game changer". More on that in a minute.  In addition, I didn't hear quite as much passion about the Chinese hard landing view either. This might be because on Tuesday, the Chinese stock market enjoyed its largest one-day rally in a long time, coinciding with a set of much better-than-expected economic reports and talk of forthcoming monetary easing. This week's Economist has a very interesting piece about the latest Chinese data, suggesting that the share of consumption in GDP might have started to pick up. As I have maintained as the number one global topic for this year, if China can combine "slower" growth with a rising consumer, a softer external surplus and lower inflation, this is as close to nirvana as you might get. As the Economist piece suggests, there are some strong hints of this already in the Q4 GDP report. While China's GDP at 8.9 pct was its weakest quarter for over 2 years, it was better than expected.  And, while we have sketchy details, the trade surplus ended the year barely above 2 pct of GDP and the latest retail sales were above 18 pct.

One other point for all the China bubble watchers out there. Official Chinese estimates now show that just over 50 pct of the population is urbanized. Based on most people's estimates, including work I have been involved in, it is likely to move to 70 pct before one can assume China is urbanized. This involves around another 200 million people moving into cities. Quite how there is supposed to be a nationwide house price bubble with this prospect ahead I have no idea, but many don't seem to appreciate this. Moreover, as I pointed out at the GS macro conference where I spoke, in complete contrast to the US, Chinese house prices have reversed in the past 18 months because policymakers deliberately stopped them from rising. At some point, when they reverse policy tightening, the house price "problem" will turn out to be not as big a deal as so many fear.

Linked around Chinese developments, as I showed in the one slide that I was allowed to show at the macro conference, the rising power of the 8 Growth Market economies will actually boost the world economy's growth potential this decade to somewhere close to 4.5 pct, not the grim world most believe in.

A couple of other things caught my eye in this context this week. Indonesia had its credit rating revised back to investment grade by Moody's this week, only 14 years since it was revised down to junk. (There is hope for Portugal and Greece too eventually.) And another FT story I saw suggested India, disappointed by 7 pct growth - close to the rate we assume for the decade - is considering a large public sector stimulus. And Europe?

It was a better week for European markets again, despite the S&P downgrades and occasional fears about Greek debt restructuring. Some of this appears to reflect the changing appreciation of the 3-year LTRO that the ECB undertook in December, another of which is coming in February. As mentioned above, a couple of people I spoke to seem to think this is a possible "game changer". While it obviously can't solve deep fundamental issues facing Euro Area economies, it certainly has dramatically reduced the chances of a systematic banking crisis and, in the process, cut the vicious circle between that and sovereign debt holdings, and in addition, greatly reduced the risk of contagion beyond Europe. I am somewhat baffled as to why so many people still worry about this risk now. I saw a presentation while I was in NY that considered various risk scenarios around a central growth forecast for the US a touch below our official one. It contained a probability of a banking crisis of 25 pct - linked to Europe - and just 10 pct for "normality" for the US, or growth back at 3 pct. I cannot see this risk being anything close to this in the next 3 years.  In my view, because of the LTRO, it can't be much at all.

On top of this, we had another impressive performance from Mario Monti, the new Italian PM this week. In addition to presenting a number of important supply side structural reforms, he took to giving the FT a most interesting interview this week. In addition to being one of the few leading policymakers who wasn't moaning about credit rating agencies, he suggested that lots of changes and reforms are necessary. The most interesting part was reserved for his suggestion that Italy needed some kind of "reward" for its efforts to get its fiscal house in order, which follows up the previous week's suggestion that the ECB can relax as and when the so-called Fiscal Compact is agreed, possibly at the end of the month.

Both of these forces suggest to me that the improved performance of the Italian bond market makes a lot of sense, and I suspect it is set to continue.

There are plenty of things that can still go wrong, but it is true that, apart from the above, the European markets have started the year in better shape despite the widespread credit downgrades, all the fears about the French election and, of course, the uncertainties surrounding Greek debt talks.

I am wondering whether it is because there is also some acknowledgement that the German economy is not only holding up better than the worst case scenarios, but it is also adjusting more to stronger domestic demand. I heard one of the better ex ECB board members this week suggest that this was happening, citing the easiness of German financial conditions and apparent evidence of a strengthening construction sector. As he suggested, this is actually how the EMU can and should work as the system adjusts. Markets and What Can Go Wrong?

Given that the successful passing of the 5-day S&P rule has transferred into apparently the market's best start since 1987 (let's not worry about the October factor that year for now), and there are continued signs of less intense correlations across asset classes, it all feels rather nice for those of us who have maintained a more cheery view of the world.

My comments last weekend regarding Japan, its debt, JGBs and the Yen got picked up on quite a bit at the macro conference and one or two people are starting to think that "this may be the year". Certainly, if the Yen were to move back above Y78.30-ish, I suspect quite a few might want to explore that idea. As I wrote and said at the event, looking out over the next couple of years, this is a lot more interesting now than the European story.

Trying to maintain my emphasized fresh 2012 focus, I think we need to watch the flash European PMI's in the week ahead to see whether the macro picture is stabilizing as December suggested or whether it was just a temporary factor.  And, of course, the early February data the week later will be most interesting in terms of global trade patterns at the start of the year (Korea's first 20 days of January looked a touch softer, but let's see the whole month.) The GS Advance Leading Indicator for January shows further signs of improving global momentum, which is good to see, so let's see if it is maintained.

When I was quizzed last week about what could go wrong, I found myself thinking in terms of the Middle East. I think I noticed during my travels that Saudi Arabia is now suggesting it wants a $100 per barrel oil price, which suggests they are struggling to finance their big boost in domestic spending. I say this, because from everything I increasingly read and hear, it seems to me as though the fundamentals for the energy markets are turning. Natural Gas prices continued to drop in the US last week linked to the remarkably rapidly shifting US supply and demand changes, and the IEA is revising down its estimates of global oil demand. The implied consequences for energy prices is obviously good, but if this is where things may head, some countries that have gotten used to constantly rising prices are in for some challenges. (Russia is obviously one of these countries, which is why Putin needs to deliver on his frequent suggestions of shifting the balance of their economy.)

Beyond this, it seems to me that there are so many exciting things going on, lots of focus on changing equity and bond market benchmarks and so on. We have done a lot of work on the equity benchmarking issue, and I am increasingly thinking we need to turn our attention to bond market benchmarks now too.

You may be pleased (or not) to know that I won't be writing a Viewpoint next weekend as I shall be in Prague.  Some big football matches in the UK this weekend, also exciting, at least ahead of them!

Sberbank of Russia and Troika Dialog announce the closure of the deal to merge the two companies. This landmark event signals the creation of the largest universal banking institution in Russia.

The integration of Troika Dialog will enable Sberbank to reach a new level of client service through high-quality financial consultation and a broad choice of investment strategies, underpinned by a full range of modern financial instruments – from the Bank’s traditional credit products to complex investment banking and global markets products. An undisputed regional market leader will emerge as a result of the merger of these two complementary businesses.

As part of the process of integrating Troika Dialog into the Sberbank structure, a new division is being created: the Corporate Investment Bank (CIB) which will provide services to the largest Russian and foreign corporations and financial institutes. CIB will become part of the business unit entitled “Corporate Business” managed by Andrey Donskih, Deputy Chairman of the Management Board of Sberbank of Russia. Alexander Bazarov, Member of the Management Board, Vice President of Sberbank of Russia and Director of the Corporate Clients Department, and Ruben Vardanian, CEO of Troika Dialog have been appointed Co-heads of CIB.

The second area of business being created as a result of integration is Wealth Management. Wealth Management will include the business areas which focus on selling investment products to private clients, including Asset Management and Private Banking. Ruben Vardanian, Troika Dialog CEO, will head Wealth Management; Bella Zlatkis, Deputy Chairman of the Management Board of Sberbank of Russia, will oversee this business unit. The unit’s development plans include the creation of the largest private bank in Russia, leveraging western experience of developing product lines and client service technology.

According to preliminary data for 2011, the divisions of Sberbank and Troika Dialog together generated 22 billion roubles of income from operations made on the financial markets, out of which 8 billion roubles came from securities sales and trading operations, and 6 billion – from conversion operations and precious metal operations. In 2011 investment banking services generated preliminary income of 3.4 billion roubles. The Bank plans to significantly increase income generated by these segments after the teams are unified, which will happen in the immediate future.