According to the CBR, in 3Q13 the CA surplus worsened by two thirds to USD 1.1bn. The key drag on the CA balance came from an increased deficit in services and investment income.
The trade balance surplus edged up 11.2% YoY to USD 42.8bn on the slower growth in imports (0.5% YoY) coupled with a 6.8% YoY jump in oil and gas exports.
Also, net private capital outflows more than doubled QoQ to USD 14.8bn, but were still notably lower than in 1Q13 (USD 37.8bn). This brings the 9mo13 figure to USD 49.8bn. Outflows in dubious operations decreased 29% YoY to USD 6.0bn.
The CBR’s first estimate for 3Q13 outlines the shrinking CA surplus on a seasonal expansion in services (it is the holiday season) and investment income deficits, despite the resilient trade surplus on strong oil. We treat the CA deterioration as a trend, flagging persistent erosion in competitiveness. Had the Syria conflict not broken, we would have seen a CA deficit for the first time since 1998.
We think the higher reading of the net private capital outflow in 3Q13 vs. 2Q13 can primarily be explained by the growth in corporates’ foreign assets in the form of FDI (partly triggered by the EM sell-off and greater oil windfalls than Russia’s economy can safely process) and higher net e&o, while the drop in banks’ foreign assets was visibly supportive. Another cause for lower capital outflows in 2Q13 and higher in 3Q13 was dividend payments, which were recorded as a jump in foreign liabilities in 2Q13; however, in the last quarter, when they were paid, these transactions led to a decrease in foreign liabilities. The persistent ‘bad’ capital outflows only adds to our concerns.
However, the CBR’s interventions and more favourable BoP seasonality in October-December caps RUB weakness, while global EM sentiment and the expected decline in oil quotes to USD 100/bbl might limit RUB appreciation. Our base case is for RUBBASK to trade mainly near RUB 37.0-37.5 in 4Q13.