The active withdrawal of capital that Russia is currently experiencing is not an isolated situation. Recent months have shown that all over the world, investors are reducing the amount of risky assets in their portfolios. Joerg Bongartz, the CEO of Deutsche Bank in Russia, talked to the World Economic Journal about the volatility and uncertainty in the global markets.
Mr. Bongartz, Russia experienced its highest amount of capital withdrawal over the past two years. What is causing this trend and just how critical is the situation, in your opinion?
The development of the financial market lately is happening in such a way that investors are moving away from risky assets. We are also experiencing a record change in capital in the market, which is causing investors to get rid of Russian assets and no longer view the country as one of the major players in the stock market. Similar developments are occurring within the stock market – the amount of bond loans is significantly decreasing.
But throughout the summer season, the situation remained stable.
Yes, mostly because there was a higher flow rate. Because of that, if the situation stabilizes, then it is entirely possible to anticipate that the process will slow down and give the market time to recover. For now, it’s difficult to predict, given how uncertain the situation is on a global scale, but right now, export rates of capital are decreasing, which could signal that the process is slowing down.
How did this situation affect the moods of investors?
This year, the growth rate in the Russian economy is expected to be around the level of 4%. This is a fairly solid growth rate, if we compare with different, weaker regions, but there’s no comparison with the pace of growth in the year 2008. Investors are looking, along the same line, at moments like this, as well as which sectors will grow over the next few years. The economic situation in Russia, as is already known, depends on the prices of resources before all else, especially of oil, as well as the dynamics of the global market as a whole in coming years.
And what will those dynamics predict?
Global market uncertainty reigns against a background of growth in the Eurozone. In a couple of countries, there is not much growth now in the period of the first long recession. For example, a slowing in the growth of the economy means, and brings to light, whether or not China’s resources can have a negative effect on the global market for raw materials, although the same price on oil stays stable around the level of 100 dollars.
How are the dynamics in the Asian market right now? Is it possible to say they are an engine driving the global economy?
The economic situation in Asia right now is certainly better than the rest of the world, but in key centers like China and India, there is an observable slowing of economic growth. Investors anticipate that, starting from the end of the year, China once again will start to accelerate in economic growth, which should be a driving force for economic recovery in the region.
Will the slowdown of economic growth in developed countries affect emerging markets?
Right now, there is an observable correlation between growing dynamics for developed countries and developing countries. Because of that, naturally, it is possible to suggest that the slowdown will have a negative impact on developing countries. Right now, practically all the economies of the BRICS countries observed a slowdown of economic growth – Brazil experienced a 2% slowdown rate this year, for example. In Russia, the same thing will be happening, more likely than not, and the country will experience a reduction in comparison with the good indicators of growth from 2010-2011.
But all the investors will then turn to the BRICS countries?
We hope that the stream of investors will finally stop and even increase in the global economy, including in developing countries. It is thought that developing countries will become some of the main players with the influx of external investments because of the benefits in their financial reserves and the larger amount of cheaper estimates of foreign assets.
From where you stand, will the European Central Bank have a chance to supply market liquidity, as so many of its representatives are saying nowadays?
Recently, we’ve been hearing a lot of similar claims, one of which comes from the American Federal Reserve System, but experience has shown that these political statements are all short-term, and as a result, there is a certain amount of uncertainty. Many in Europe right now depend on how Italy and Spain behave themselves right now. The European Central Bank has said that it will be buying up loans, but the question is when that will be and in what numbers, as well as how much it will cost to remain open. What effect it will have is hard to predict right now, although after, its currency plans have been revealed, the financial market stabilized and borrowing costs for “outlying” countries fell.
Spain and Italy already released emissions that were less expensive than the numbers released by the European Central Bank in their well thought out strategic move, though.
Yes, because in all likelihood, there won’t be another catastrophe in the European financial market, and investors’ willing to invest funds is only increasing. This is seen in the quotes from the exchange, provided by data from Sberbank, which recently posted its SPO, and in many other examples. All this opens the field for even bigger transactions if more issuers get as interested in the second period as others were in the first. Overall, in fall of this year, there was a period of high interest when large activity was observed on the market.
In the past couple of months, a couple of experts have called for Germany’s withdrawal from the European Commission as a solution to the many problems in the Eurozone. How justified would this action have been, had it been taken?
In my opinion, it is not a decision that the Eurozone needs to be making. After all, Germany is one of the largest exporters in the world and a separate currency would not be any more useful to the country. The currency-based union is just one element in the big European space, which was formed over the span of many decades. Europe has problems that need to be resolved, and everyone wants to establish the situation. Were Germany, as the most economically advanced in the Eurozone, in my opinion, to leave the EU, it would not be a very practical solution.
Text: Anastasia Yakovleva