Markets soar on Medvedev’s nomination

Russian markets soared on news of Vladimir Putin’s decision to back First Deputy Prime Minister Dmitry Medvedev as the country’s next President. Gazprom, which is chaired by Medvedev, led Monday’s rally.

The RTS index rose by 1.95% to 2,330.45, MICEX index rose by 1.68% to 1,945.43.

The move ends months of political uncertainty, according to Unicredit Aton’s Vladimir Osakovsky.

“He is actually going to be a real president, maybe as long as two presidential terms which is obviously very good. It's a good sign that Putin is actually leaving for good. He will keep the control but he is actually leaving a presidential position,” he says.

A lawyer by education, Medvedev represents the liberal wing of Putin’s current team and is expected to stick to the economic reforms that led to years of robust growth.

Indeed, Russia has much to brag about.

Speaking at an investment conference on Monday, Finance Minister Aleksey Kudrin said foreign direct investment will top $US45 billion in 2007, almost doubling the 2006 figure of $US26 billion.

But Kudrin admitted that the government had failed to keep inflation in check as the credit crunch forced the Central Bank to focus on pumping liquidity into the financial sector instead.

“We lost 2007, but we will be able to catch up with the inflation goal of 5-6% by 2010,” Kudrin hopes.

Osakovsky names inflation as one of the main battles for Medvedev if he ends up winning the presidential elections in March.

“Inflation is actually accelerating, it's the major economic challenge to the Russian government right now and over next 1-2 years,” the analyst notes.

Although net capital inflows will top $US75 billion dollars by the end of the year, the Russian economy is still largely dependent on energy exports. The task of diversifying the economy – would be a major challenge for a Medvedev’s administration.