Chris Weafer, Chief Strategist at the Uralsib Financial Corporation, described the markets’ positive reaction to the recent political developments in Russia.

Russia Today: Russian stock markets have reacted positively to the announcement that President Putin will head the United Russia party's electoral list – and possibly stay on as Prime Minister after the presidential elections. Why did the markets rally?

C.W.: Because they like the stability that comes with this promise. President Putin has overseen this extraordinary period in Russia’s economy and history over the last seven-and-a-half years. We saw the stock market rising by over 1,000% – the best-performing emerging market in the world – and the economy growing by a factor of more then 5.5 times. Putin has been identified strongly with this strong period of growth. He has been identified as a voice of moderation within the Government, within the country over this period by investors.

And the fact that he is now looking for ways to stay in power, to stay in the central role – this is something that investors really like. And you’ve seen how they’ve responded to it, with the RTS index now going to a record high today after his announcement yesterday. Part of it of course was a response to what has happened at the international markets, but a lot of this has to do with this sort of comfort that is coming from Putin’s determination to stay.

RT: Could the markets be mistaken in giving so much credit for the buoyant economy to one man?

C.W.: That’s a very interesting question you’ve asked, because the investment case of Russia is about to substantially change. For the last 7.5 years it essentially was a story of starting with very cheap assets after the crisis, and those assets becoming steadily less cheap on the back of almost 3/4 of a trillion dollars' worth of oil and gas revenues, plus the political stability.

Now the Government is promising to start using the accumulated financial wealth plus the national champion companies are being built – sometimes controversially of course – in the oil and gas sector. But they are now promising to use that to start developing the economy in a new direction. Quite simply, this Government is untested in that and we don’t know whether they are going to be successful, but at least investors can take comfort from the fact that a reliable team is in place. But they are untested in what they say they are going to achieve. We’ll have to wait and see.

RT: With the economy getting different now, and the tap of cheap credit has been turned off for corporate borrowers, who will finance Russia's booming economy now?

C.W.: The state. That’s what they are telling us they are planning to do. It’s part of the transition to this new economic model. The state has accumulated a substantial amount of financial reserves over the last several years. The Stabilisation Fund is now almost $US 150 billion. Plus there are these control structures like Rosneft or Gazprom that have been built.

So they are now going to start using the money. Even from the three-year budget plan that has been approved we know that the Government is no longer planning to accumulate a big budget surplus – it’s planning to build the money on building infrastructure, on supporting developing key industries. The state will be the primary driver of the economy – or so they tell us – for the next few years. And if they successful, then we would expect to see a re-acceleration in private investment alongside. But the key is the state for the next few years.

RT: We're heading into a pre-election period. Will the new economic team in the cabinet be able to resist the pressure to spend Russia's oil and gas windfall and what are the dangers?

C.W.: Yes, it’s always a dangerous time in the economy with the upcoming elections and there’s always a temptation to buy votes by spending money. Probably, now that danger is passed. There has been an increase in spending this year as the Government sort of looked way ahead of the elections. Now we are into the final phase. From the recent cabinet changes we know that now more moderate reformist ministers like Finance Minister Kudrin and Kozak from the Regions are in a more powerful position. So we have a better comfort level from that factor as well.