Mobius Sees Blessing for Russian Economy in Crude Oil Collapseby
Oil drop may force government to diversify economy: Mobius
Russia gets about half of budget revenue from oil, gas sales
The slump in crude prices may finally force Vladimir Putin’s government to take steps to diversify Russia’s economy by bolstering businesses outside the commodities industry, according to Mark Mobius of Franklin Templeton Investments.
“In view of the fact that the Russian government budget has been so reliant on oil prices it is clear that the prospects for the economy and the market aren’t good,” Mobius, chairman of the emerging markets group at Franklin Templeton Investments, said by e-mail on Thursday. “However, this development could be a blessing in disguise if the country is able to diversify the economy so the government income is not so reliant on oil."
About half of the 50 stocks in Russia’s benchmark Micex equity gauge are commodity producers, while almost 50 percent of government revenue comes from the oil and natural gas industries. With Brent crude at the lowest level in 12 years, Russia is reining in budget spending and the finance minister warned on Wednesday that authorities may burn through one of the nation’s two sovereign wealth coffers by the end of the year if no steps are taken.
The commodities rout has compounded the effect of U.S. and European sanctions over Russia’s role in the Ukrainian conflict that restrict its access to global financial markets. The 2016 budget is based on an average oil price of $50 a barrel, while Brent was trading at $30.34 on Thursday.
“With oil prices so low the Russian government budget is not in good shape which would constrain any stimulation measures the government might want to implement,” Mobius said.