When it comes to the US and Russia, there is a lot of history to brush up on. Fortunately, the financial status of each country is less complicated, right? Maybe not. Just like the ups and downs of each country’s political past, these two countries have had their ups and downs. Furthermore, they have been more connected when it comes to their capital markets. Most recently, Russia capital flows have changed again, just like China stocks. Should we be worried as international investors?
Prior to 2015, Russia was experiencing capital outflows. As money was leaving they country, they did have cash reserves to withstand the downturn. But, when billions in capital is leaving the country, its not a good signal. The outflows were impacted by US capital markets and EU markets. These two markets pulled cash out of the Russian markets. But, as we will see. There were other factors contributing to the capital outflows.
Last year was the first time in more than 5 years that Russia saw a capital inflow. This is good news for Russia. So, who gets the credit? It seems like its not the US or EU. In fact, some investors would attribute the inflow to more confidence in the ruble and Russian economy. Certainly, it is a good shit for the eastern superpower.
US And EU Outflow
Given that capital is flowing into the Russian markets, can we expect a outflow of the US or EU markets? That remains to be seen as 2016 is just underway. However, we can watch the capital market signals to determine if Russia will continue to see an inflow of capital. Undoubtedly, a strong currency and economy will help money come into the country.
Running On Defecits
If market history teaches us anything, large countries like the US and Russia can run on deficits. They may see depreciated currency, stalled employment and declining growth. Sometimes, the deficient could be caused by a great environment in the opposing country. During these times, the countries may have limited capital flows, or total outflow.
Things Turn Around
But, once the decline slows, things do turn around for the country. In Russia’s capital crisis, their cash reserves helped them get through tough times. The United States does the same, or is currently doing the same. Think of it like the best debt consolidation tactic a country has. Keeping cash reserves gives each country the security it needs to make through to the good times again.
Analyzing these two countries capital flows, there is a greater need to ensure cash reserves. While their financial situations may change like the political climate of the past, cash holdings will secure a stable future. Certainly, Russia’s capital flows have seen a turnaround. Maybe, its time to save up for the next rainy day.
One of the most shocking, and promising, statistic to come from Russia’s economic recover relates to the exit of Russian capital. Early in 2016, Russian capital exit was quoted at $10.5 billion. To understand the significance of this, you should know that just one year prior that same figure was over five times greater; two years prior, it was over ten times greater. Clearly, investors are not trying to flee from Russia any longer. This is a great sign of better things to come for Russia capital and investors, alike.
Looking at Russia’s turnaround, the US may want to have a turn around of their own. To experience a capital inflow, the country needs to restart its economic engine and let businesses compete internationally. Once the currency continues to strengthen and the deficits are controlled, there is a good chance to have an upturn. Surely, both countries are prone to financial ups and downs.
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