Emerging Markets : A Return To The Bad Old Days


The gangland-style murder in September of Andrei Kozlov, number two at Russias central bank and a widely respected banking sector reformer, cast a shadow of doubt on how much really has changed in Russias banking sector since the wild 1990s. Increased uncertainty notwithstanding, soon thereafter Frances Socit Gnrale doubled its stake in Rosbank, one of Russias largest private banks, to 20% and has an option to possibly take control of the institution by 2008. The boom in Russias banking sector has led to a number of high-profile acquisitions by foreign banks, despite continued questions surrounding the regulatory environment in the sector.

Russias energy nationalism rose to the forefront again when Sakhalin-2, the $20 billion oil and gas project in Russias Far East, had its environmental permit canceled, effectively halting its developmentand setting off a diplomatic ruckus. Days later, gas monopoly Gazprom confirmed its interest in buying the 50% of oil joint venture TNK-BP currently held by the Russian partner, which will increase pressure on BP. Meanwhile, state-controlled oil company Rosneft, which had a splashy IPO in July and enjoys some of the highest valuations in the Russian oil sector, disappointed investors with a 35% decline in second-quarter net income.

What started as a spy spat between Russia and Georgia rapidly escalated into the most serious argument yet between the two neighbors, as Russia severed all air, sea and land links to its former ally. Heavily dependent on Russia for trade and gas, tiny Georgia clearly has the most to lose.

Aluminum producers Rusal and Sual announced they were to merge, in a deal that will see the combined company surpass Alcoa to become the worlds largest producer. The deal, which also involves the alumina assets of Swiss commodities trader Glencore International, has a market value of around $30 billion.

Kim Iskyan