Food makes up 38% of Russia’s CPI, with two-thirds of that potentially sensitive to drought. But even if higher food prices do not affect inflation very much, they will leave consumers with less to spend, thereby reducing economic activity. [Russian ETF: Jury Still Out on Growth.]
However, Russia has enough grain in storage to meet the projected shortfall. And according to Chris Weafer, a strategist at Uralsib, the government will do whatever it takes to keep domestic food prices low.
Despite Russia’s efforts to wean itself off of oil, a rebound in oil has pushed Russian Eurobonds due 2020 to 103.39 cents on the dollar, reducing the yield to a record 4.56%. In contrast, 5-year bonds are priced at 100.39 cents, report Denis Maternovsky and Michael Patterson of Bloomberg.
Despite the drought that has devastated Russia’s crops, investors seem optimistic about Russia’s future. [Russian ETF May Benefit From New Tech Initiative.]
For more stories on Russia, visit our Russia category.
- Market Vectors Russia (NYSEArca: RSX)
- SPDR S&P Russia ETF (NYSEArca: RBL)
Sumin Kim contributed to this article.