VTB Capital, the Russian state-controlled investment bank, is hoping to arrange "three or four'' IPOs through its new Hong Office next year.

The bank's deputy chairman  Yuri Soloviev said the listings would be in the energy and metals and mining sectors, according to the Hong Kong Economic Journal.

The Hong Kong team will be boosted to between 30 and 35 from today’s seven within the next year or two, according to the Russian firm.

By Chris Weafer, Chief Strategist at Troika Dialog.

“Money is better than poverty, if only for financial reasons”

Woody Allen Relief at political changes. Markets finished last week with a palpable sense of relief that the political crisis in Europe has been contained and that this may allow for a more determined effort by the new administrations in Greece and Italy to deal with the debt issues.

Nobody can take for granted that the crisis has now been resolved, far from it, but there is greater hope that the worst has passed for now and the “can” firmly kicked into 2012. Coupled with the EU political relief is also the greater sense of optimism that recession in the US can be avoided as recent macro indicators show modest but positive improvement.

The key day to validate or dent that renewed optimism this week will likely be Tuesday as important US and EU data will be updated. Still, given the volatility seen since early summer and the propensity for surprises, the prudent approach remains one of caution even as the respective Greek and Roman Gods of happiness smile on markets at the start of a new week. Better start in Asia. Asian markets reflected the renewed sense of optimism with a strong start to

Another step towards WTO. Russia and Georgia signed a bilateral agreement in Geneva yesterday that removes a major obstacle to Russia’s entry into the WTO in mid December. The Russia-WTO working group meets in Moscow today and tomorrow and is expected to also finalize outstanding issues ahead of the December Council meeting. Also in Moscow today (or tomorrow) Prime Minister Putin will meet with members of the Valdai Club and is expected to emphasize Russia’s determination to improve investor and business conditions in the country. Elsewhere today, the weekly US jobless claims report can often affect investor sentiment. The ECB publishes its monthly economic report for November and that will hardly provide any encouraging words for investors. ENRC will publish 3rd Qtr production data.

Trading – Moscow: Moscow’s bourses yesterday opened with a net gain as a reaction to the encouraging Chinese inflation and macro data. But, as was the case everywhere, the mood quickly changed as Italian bond yields rose. Both MICEX and the RTS slid through the session for the former to end 4.2% lower and the latter to finish with a loss of 3.3%. Sberbank was the best of the blue chips in recent sessions so not surprisingly took the brunt yesterday. It’s shares lost 6.6% on MICEX. VTB ended 4.1% down. Another reason for bank sector weakness is the fear that the ruble will reverse its recent positive course in the face of global risk aversion. Yesterday the ruble just about held onto a gain (+1 basis point) against the dollar as the MICEX session closed.

By Andrei Skvarsky.

The Russian Direct Investment Fund (RDIF) has about 20 projects worth a total of about $5bn under consideration, according to comments from Vnesheconombank, manager of the country’s sovereign wealth fund.

Potential deals that are being mulled by RDIF, which was established in June to draw foreign money into Russia’s underdeveloped private equity sector, include a project to sell Sukhoi Superjet 100 regional airliners to Indonesia.

In mid-October, RDIF and its Chinese counterpart, China Investment Corp, set up a joint fund, each pledging to invest $1bn in it with plans to raise between $1bn and $2bn more from other Chinese investors. For online resources for managing funds, see Accounting Degree.

China's sovereign wealth fund agreed yesterday  to invest $1bn in a Kremlin-backed investment vehicle during a visit by Russian Prime Minister Vladimir Putin.

China Investment Corporation's deal marks the first commitment by an investor to the Russian Direct Investment Fund, a private equity vehicle set up in June as a way to diversify the country away from its sickly dependency on oil.

The fund has been talking to every major buyout on the planet but not a single private equity fund has yet agreed to co-invest with the state vehicle.

Russia's state-run bank VEB will be a strategic partner of the fund and provide financing.

By Chris Weafer, Chief Strategist at ING in Moscow.

Despite the continuing global uncertainties investors have again increased allocations to the emerging market asset class for a fourth straight week. But there is still no appetite to make specific allocations and most country-dedicated funds again reported redemptions, Russia funds included. Sovereign debt risks and an uncertain picture over global growth are keeping most investors on the sidelines.

Playing in safe with GEM Balanced. For the week ended on Wednesday, EPFR Global’s fund flow analysis showed that a total of $878 mln, or 0.12% of assets under management (AUM) was invested into emerging market (EM) funds.

That was down on the $1.36 bln invested the previous week and the $2.5 bln the week before that. It is, however, typical for a mid July week. The total was again distorted with an unusually large movement in Taiwan funds, which this week received a net $323 mln (2.8% of AUM) and all of that via ETFs.

GEM Balanced funds were again investor’s favourite with a total investment of $1,127 mln. Investors have been playing it safe via “global balanced funds” since May. BRIC theme funds have been out of favour for more than one year and last week reported redemptions of $105 mln (-0.5% of AUM).

Russia flows were light. Amongst the country-dedicated funds, Russia funds reported redemptions of $68 mln (-0.3% of AUM) and that compares with a net inflow of $14 mln last week but a loss of almost $500 mln for the previous two weeks. Of last week’s $68 mln outflow, $18 mln of that was taken out via ETFs.

China investors reacted to the higher inflation number. China funds reported redemptions of $261 mln last week (-0.3% of AUM) as investors reacted to the higher than expected inflation number reported last weekend. Indonesian and Malaysian funds reported net inflows of $67 mln (3.0% of AUM) and $81 mln (4.8% of AUM) respectively.

India funds, which have reported net redemptions for the previous straight ten weeks, this week added a modest $25 mln (0.1% of AUM). Brazil funds lost $73 mln, down from the $7 mln for the previous week.

Russia ended up with a net zero. In the EMEA region, Emerging Europe funds lost $14 mln, down from an equally modest outflow of $5 mln the previous week, and EMEA regional funds took in $34 mln (1.9% of AUM). That was up from $3 mln the previous week.

Turkey country funds were nest most active to Russia and reported a net outflow of $15 mln (-0.6%), down from an inflow of $2 mln the previous week. Taking Russia’s direct outflow (-$68 mln) with the country’s share of the inflow to GEM Balanced and EMEA, less the share of BRIC redemptions (+$69 mln) into account the net total for the week was almost exactly zero.

By Chris Weafer, Chief Strategist at ING in Moscow.

Moscow’s bourses will likely start the new week with a modest amount of relief that the US markets clawed back some of Friday’s early losses and because the price of Brent reversed a $2 p/bbl loss to end the session off only 26 cents.  Asia’s markets will, however, play catch-up, reflecting the disappointment elsewhere with the US payroll report and also because of the higher than expected China inflation number released on Saturday. The prudent approach, likely to be adopted by most investors, is to remain on the sidelines until the follow-through from the US comes clear over the next couple of days (see below).

The main directional driver of Moscow’s bourses continues to the trend, and newsflow, in global markets rather then the improving domestic picture. While that is unlikely to change all summer the domestic story is clearly improving. A more solid platform for market performance is being built for the autumn, especially if global markets can at least maintain a modest recovery. The best themes are still likely to be those with a domestic growth and infrastructure bias. Shorter-term, the steel names will remain the high-beta plays.

Russia’s next IPO will be Phos Agro. It is scheduled to close, and price, the issue on Wednesday. The issuers have learned from other’s experience and have already cut the initial target valuation from the $7.1 - $8.8 bln range to a more modest $4.8 to $6.1 bln range. The aim is to raise $500 mln and that, if successful, will add to the $3.87 bln already raised from 6 IPOs this year plus $3.88 bln from 3 SPOs. 

Global Market Backdrop

Investors had hoped that Friday’s US payroll report would confirm a strengthening of US recovery. Instead it severely dented investor confidence and again leaves markets precariously balanced. As the new week starts, investors will at least be relieved that US equities and most commodity prices closed well off the session lows and that may allow modest gains in Europe on Monday. But price moves will be slight and volumes low as nervous investors will take the prudent approach of waiting to see how the US markets open.

This will be a critical week for all markets. There are quite a few important indicators of economic strength due in the US on Thursday and Friday and they should help answer the question as to whether Friday’s payroll report was a blip in a still positive trend or whether it was a reality check. Currencies will dominate before that as EU ministers meet to try and advance the Greek bailout and to stem any further problems in Portugal. The US Fed chairman makes a semiannual presentation to Congress on Wednesday. Both events will affect the dollar-euro market and, by extension, commodities and the ruble.

The main headlines, however, will come from the start of the US 2^nd Qtr earnings season, which kicks off with Alcoa’s number late on Monday and steps up a gear with JP Morgan, Google and Citigroup later in the week. Earnings are the real test for the market and are what drives income and asset valuations. Economic numbers are only guides to earnings. One side of the bull-bear arguments will be provided with

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

Last Friday, July 1, was the 90th anniversary of the Communist party in China (CCP or CPC as it is now sometimes known) and the government celebrated with quite a fanfare. Not for the first time, I spent quite a lot of time pondering China, its likely future, and its impact on the rest of us.

This is my 30th year in this wonderful business.  So, I have been looking at the world professionally for a third of the CCP’s existence. For the first decade, I rarely thought about China or their economy. I first visited Beijing in 1990, the year after the Tiananmen Square uprising, some 21 years ago. I have been there endless times since. The change has been remarkable. I recall that there were very few Western hotels to stay at in those days, perhaps the China Wall and the St. Regis. I remember visiting the Badaling section of the Great Wall. At that time, the last third of the journey was essentially on a dirt track and it seemed like quite an adventure.  The car I was being driven around in was a rarity on the roads. The biggest challenge facing the driver was avoiding the thousands of bicycles and numerous cart bikes. These days, Beijing’s ring roads effectively spread as far as that part of the Wall.  And, for a couple of years now, China has become the world’s largest auto market.

When I joined GS in 1995, things had already started to change pretty dramatically, and I had developed a regular dialogue with those responsible for foreign investments. Nonetheless, looking back, according to data I can find from the GS ERWIN website, their economy was about $ 350 bn in size at the time. Ironically, this is about the same size as Greece today. Over my near 16 years at GS, China has already overtaken Japan, and this year, its US$ value of GDP will probably grow to above $ 7 trillion. So, in my life at GS, China will have created another 20 of itself. As an aside, as I keep telling people, this is why I can’t get too excited about Greece’s problems and the world unless it were to lead to substantial contagion. This year alone, China will create $ GDP of more than 3 times the size of Greece, and its import growth is likely to be as big as the entire Greek economy.

Of course, in my old life as Head of GS Economics as well as in my new one as Chairman of GSAM, I am at the forefront of those that have suggested China is likely to become the world’s biggest economy, probably sometime in the second half of the next decade.  Let me just emphasize at outset that, in my old and current life, I have always been at pains to point out that I have only ever said China could be the biggest economy in the world by 2027, not that it will.

Despite the fact that the country is led by a single party, which holds Communist virtues, if China tracks even close to its current path, then it will become the world’s biggest economy in another 16 years or so, with a lot of profound relevance for us all. In fact, the big picture BRIC projections that the GS Economics department undertakes, is currently assuming that China will grow by around 8 pct over this period, which is markedly less than the past 10, 20 and indeed 30 years, which astonishingly has been more than 10 pct on average.

This week, the China Daily, often regarded as the voice of the CCP, has some remarkable facts and figures about their achievements, as well as many interesting statements about their style and aspirations for the future. As also reportedly said by President Hu at the official celebration of the anniversary on Friday, the China Daily includes lots of references to promoting the “socialist market economy” and “social democracy”. According to the weekend FT, President Hu mentioned the word democracy 32 times in his speech.  That said, most political observers don’t expect any radical changes to the form of governance in the near future.

It is a remarkable irony and perhaps the greatest global contradiction of our current lives that the nation that is being driven by a single party can be expected to successfully become so large and much richer. By 2050, the last formal GS BRIC 2050 projections imply Chinese GDP per capita in excess of $50,000, above most countries today, although importantly not as wealthy as most Western economies will be in 39 years. Already contradictions abound. Some studies already claim China has more than 1 million millionaires, which for a nation with an average wealth today of around $6,000, is quite remarkable. The 2011 Forbes study of the world’s billionaires concluded that China has just over 300, and in fact, one more than in all of Europe. Some people I know in Hong Kong think that there may already be more billionaires in China than in the US.

So what can go wrong? A large part of me often thinks something is bound to go significantly wrong at some stage, as that seems to happen eventually to every country. That being said, when I focus on the populist views of many, I am frequently comforted by the fact that Chinese policymakers worry even more than everyone else does about their challenges. This comforts me, as usually one should worry a bit more when policymakers don’t.

Against this background, I do find myself thinking that once China has reached an urbanization rate of close to 70 pct, some of the populist concerns might be more relevant. I often think that urbanization has been a huge driver of economic growth throughout history and many underestimate its simple powers. According to recent data I have seen, China is currently around 52 pct urbanized.  This means that they have plenty still to go and this may disguise some of the ultimate inevitable problems. I have – before anyone sends them to me – seen non-Chinese studies that claim true urbanization is already much higher, but I tend to believe the independent views of the likes of the OECD.

Of the populist concerns, I think urbanization reduces their immediate relevance. The two most common concerns are excessive investment as a share of GDP, and an aging work force. Both of these are problems for China, but only once urbanization is near complete, in my view.

In any case, the 12th 5-year plan, already mindful of both these – and many other – problems is oriented towards boosting the role of personal consumption as a share of GDP. The success of this policy, in particular, is likely to be specifically the most important thing for the rest of us. That’s because, if they succeed, the power of their consumption will help to support many of our economies. Of course, as I often write, the evidence of this is only too clear to me already. Just this week, as Premier Wen visited Europe, it encouraged me to check into German export trends with China one more time. This followed news that they had agreed bilateral trade deals in excess of £10 bn with Germany (about 10 times more than the UK agreed!). At the end of last year, China had moved to be Germany’s 7th largest export market, and is not far behind the next few. Unless something very odd happens in coming months, by the end of 2011, there is a decent chance they will become Germany’s 3rd largest export market, just behind the US, while a bit further behind France. It is possible that, by 2012, and likely by 2013, that they will become the number one export market for Germany. As another aside, this has rather large ramifications for the European Monetary Union, which, as I wrote last week, suggests that the EMU’s problems won’t get any easier with time.

As another aside, Dirk Schumacher, the GS German economist, told me this week, Germany is already exporting more to all of the BRICs together than to France. This is in stark contrast with the UK, where Ministers focus on the fact that we supposedly export more to Ireland than to the BRICs. I suspect the UK export mix has already changed beyond this, but this demonstrates how far it has to move.

Amongst other “problems”, let me briefly deal with four:  the one child policy, inequality, house prices and inflation.

As far as the one child policy is concerned, in some urban areas, it already doesn’t really exist, as anyone who visits prosperous coffee shops in fashionable parts of Shanghai and elsewhere can see. This is a deliberate experiment, as is the permission to have a second child if your first is a girl.

The inequality issue does strike me as a major policy challenge, especially if the CCP wants to uphold its exact ruling structure as they are inconsistent with its just restated goals. Eventually, those millions not sharing in the China boom, especially at times when inflation becomes an issue, will protest sufficiently to cause problems. Once more, policymakers are more than aware of these problems.

This is why the inflation challenge is currently so important in China and why it was so interesting that ahead of his European visit, Premier Wen appeared to express some confidence that inflation is not going to remain a major problem. I share the views of many forecasts in China and overseas that the second half of this year will see CPI heading back towards 4.5 pct and lower next year. If it doesn’t, this will be quite an issue.

The house price issue is amongst many that are relevant and related to the inflation and inequality issues, but of course, it has its own importance too. China would have considerable economic and social turmoil if it really did end up with the kind of property bubble bursting that so many Western economies have experienced. I recently discussed the topic with a Japanese policymaker who is widely regarded as amongst their foremost experts on China and has analyzed the topic. Given that country’s past  property problems, his general sanguine stance was most interesting. I also happened to meet one of China’s leading property business people in London this week and she also seemed quite sanguine. I often reflect back on a trip I made to Beijing in September 2009 when, at the end of a luncheon speech to some mid level policymakers, three of them approached me and asked whether I was worried about a Chinese property bubble. After jokingly replying “I am now”, I realized after that, in fact, I could interpret this as a sign that policymakers were highly likely to introduce policies to stop the sharp price rises, which they have done.

I am sure that something will go wrong eventually, but I am not sure what. The weekend FT piece has a wonderful quote from its author Jamil Anderlini who describes the CCP as more like the world’s largest Chamber of Commerce, rather than the world’s biggest political party.

INVESTING IN CHINA?

Linked to the obvious contradiction to many Western minds, the idea of investing in China just simply doesn’t seem attractive. I encounter this frequently in my new life, especially with quite conservative investors and notably in the US. Many reasons are often cited. I recently met another Pension Fund CIO who is not allowed to invest in China as his trustees believe they take American jobs. He asked me what I thought he should do, and I joked, “Get another job.” Others simply believe that China will never allow foreign investors to make money.  And finally, some cite the fact that the Chinese equity market is the weakest performer of the four BRIC markets since 2000 as evidence, despite the fact that China has created the fastest-growing GDP.  This is an interesting fact. It is also true, as two recent GSAM Monthlies showed, that the Chinese market has vastly outperformed the US markets over the past decade.  And, most importantly, unlike many other Western and truly still emerging markets, its correlation to the US major markets is quite low.

If China does get close to the 2027 matching of the US, we will all be investing more there, whether we like it or not. Whether it will be indirectly through Western companies taking the exposure for us, or directly in more developed local markets, we shall see. I suspect both.

By Chris Weafer, Chief Strategist at ING in Moscow.   Investors continue to add new money to emerging market (EM) equity funds but retain a strong bias towards the relative safety of EM Balanced funds rather than trying to pick one or more individual countries. With the exception of some unusual flows in Taiwan, and net flows into China, activity in most other country-dedicated funds was unusually light. Russia funds attracted net new money for the first time in three weeks, albeit the amount was also very modest.   Greece and US data helped sentiment. The weekly equity fund flow analysis from EPFR Global showed that, for the week ended Wednesday July 6th, investors added a total of $1,355 mln, of 0.18% of AUM, to EM funds. That was down on the $2,464 mln invested for the previous week. But that total was distorted with an exceptional inflow of $2,093 mln into Taiwan funds. Stripping out what have been very unusual flows into and out of Taiwan funds (-$526 mln this week) the total for EM – ex Taiwan this week is $1,889 mln versus $371 mln for the week prior. Given that we are in the usually quiet summer period, that is a useful net increase that better reflects the gains in most global markets as investor sentiment improved after the Greek debt threat was reduced and US growth indicators improved.    Investors switched from Taiwan to China. Asia funds attracted the greatest volume of new money, totalling $634 mln and equal to 0.26% of AUM. China funds attracted $355 mln (0.4% of AUM), their best week since end April as investors were not put off by the disappointing PMI Manufacturing report and prospects for further rate rises. In terms of % of AUM, Philippine funds attracted the most new money equal to 12.4% of AUM and Malaysia funds reported new money equal to 7.5% of AUM. At least some of the money invested into China funds came from the $526 mln taken out of Taiwan funds (4.6% of AUM). Elsewhere in Asia, India funds reported redemptions of $82 mln, their tenth straight week of redemptions, and Korea funds added $55 mln.   Little interest in LatAm. Fund activity in Latin America was very light last week with a net total of $7 mln redeemed from all regional and country funds. Brazil funds lost $7 mln and Mexico funds lost $24 mln.   Russia reversed a losing streak. In EMEA, Russia funds reported a net inflow of $14 mln (0.07% of AUM) for the week. That relatively small sum was at least better than the $188 mln and $298 mln redeemed by investors over the previous two weeks respectively. Turkey funds attracted a net $2 mln only last week. EMEA theme funds reported a net inflow of $3 mln while East Europe regional funds lost $5 mln. Taking Russia’s share of the flows into and out of the bigger thematic and regional EM funds, the total available to fund managers was increased by approximately $55 mln to almost $70 mln.

Russia's VTB Capital has won an investment banking licence from the Hong Kong Securities and Futures Commission.

The licence, which came into effect from June 30, allows VTB to undertake dealing and advising on securities activities.

VTB said the licence will strengthen its footprint in Asia and provide access to the Chinese market.

Alexey Yakovitsky, global CEO of VTB Capital, said in a statement: “There is a huge potential for Russian companies interested to attract funds from local equity and debt capital markets.”

By Andrei Skvarsky.

Central Asia-focused investment group Ansher Holding Limited is launching a private equity fund for projects in various regions along the historic Great Silk Road.

Global Silk Road Fund will target small and midsize firms in manufacturing, logistics, transport, information technology, telecommunications, and other industries. Its geography will spread from western China all the way into Eastern Europe, Ansher said in a statement.

The holding company plans to hold a roadshow for the fund in China late this and early next month and a “trip to London in the middle of June 2011”.

Ansher said it had raised a “huge” amount of capital from Swiss investors for the new fund and that the institution had aroused great interest among British investors as well.

Ansher is headquartered in Singapore and has offices in Kazakhstan, Uzbekistan, China, Switzerland and the United States.