Putin Health Confusion Sparks Investor Concern

(Bloomberg – bloomberg.com – Henry Meyer and Jason Corcoran – November 16, 2012)

Russian government reticence to discuss President Vladimir Putin’s health issues is adding to investor concern about the lack of transparency in a country that’s losing $80 billion a year in capital flight.

The Russian leader canceled or postponed five foreign trips over more than a month, including to Turkey and Pakistan, and has mostly operated out of his residence outside Moscow. The Kremlin’s only statement was a report that Putin, 60, had pulled a back muscle during judo training in early September. Officials including Prime Minister Dmitry Medvedev have repeatedly denied that the president is undergoing treatment or avoiding travel.

The lack of a more detailed explanation for Putin’s curtailed travel injects more uncertainty to an investment climate at a time when near-record amounts of capital are leaving Russia. Investors, who have to contend with the worst corruption among advanced economies, say Putin is needed as a guarantor of stability after he prolonged his more than decade- long rule this year for a new stint that may extend to 2024.

“Uncertainties around Putin’s health aren’t good for investors,” said Sergey Dergachev, who helps manage $8.5 billion of emerging-market assets at Union Investment Privatfonds in Frankfurt. “Investors don’t like uncertainty, and many still associate Russia’s relatively stable foundation with Putin.”

Capital Outflows

Capital outflows reached $58 billion in the first nine months of this year, after $80 billion left the country in 2011, according to the central bank. That compares with a combined inflow of about $120 billion in 2006 and 2007, before the collapse of Lehman Brothers Holdings Inc. sent the world economy into turmoil.

Russia’s benchmark Micex stock index is down more than 5 percent in the past month, compared with a decline of about 3 percent in the MSCI Emerging Markets Index. (MXEF) The price of Urals crude oil, Russia’s main export product, dropped 5.4 percent in the same period, according to data compiled by Bloomberg.

While Putin’s health isn’t a concern, the controversy reflects the opacity of political life in Russia, said Peter Westin, chief equity strategist at Aton Capital in Moscow. The country is the most corrupt member of the Group of 20 group of advanced economies according to Transparency International’s 2011 Corruption Perceptions Index.

Mirror Cabinet

One example is the uncertainty about the hierarchy in decision-making after Putin returned to the presidency in May following a four-year stint as premier. He appointed several of his former ministers as advisers, with responsibilities that mirror those of the Cabinet led by Medvedev.

Putin hasn’t been on a single official trip since visiting Tajikistan on Oct. 5. He usually travels to other Russian regions several times a month.

When making public appearances, he is often seen sitting. At talks with Israeli President Shimon Peres, 89, on Nov. 8, held at Putin’s residence outside Moscow, the Russian leader walked stiffly and made a statement to journalists from his chair.

Turkey on Oct. 10 announced that Putin’s visit scheduled for Oct. 14-15 had been postponed because of the Russian leader’s busy schedule. The Kremlin’s foreign policy chief, Yuri Ushakov, said Oct. 2 that Putin would skip a summit with regional counterparts in Pakistan that month because of calendar conflicts.

‘No Restrictions’

“There are no restrictions on the president,” Dmitry Peskov, Putin’s spokesman, said by phone on Nov. 15, adding that the agenda changes are “just issues of scheduling.” Putin’s health problems are “nothing serious,” Medvedev, whom Putin edged aside as president to reclaim the Kremlin, said in an interview with Finnish media Nov. 13.

Their comments convinced part of the investment community, according to Tom Adshed, head of research at the hedge fund Kazimir Partners in Moscow, who said Putin’s health isn’t a “major issue.”

“He is showing himself on the public stage and he still seems pretty active,” he said by phone Nov. 13.

Still, the assurances haven’t stopped speculation. The Russian-language search terms “Putin heart attack” yield about 30,000 Google Inc. results for the past month.

Endangered Cranes

The Moscow-based business newspaper Vedomosti on Nov. 1 cited two people close to the Kremlin as saying that Putin re- injured his back during a Sept. 6 flight leading a flock of endangered cranes into the wild in a motorized hang glider. The president is undergoing treatment and doctors advised him against any flights, Vedomosti wrote.

Peskov the same day said Putin, a judo black belt, hadn’t aggravated an old back injury during the stunt.

A strained muscle in the lower back or a degenerative lumbar spine condition would be consistent with Putin avoiding air travel and his apparent difficulty in walking, according to David Geier, an orthopedic surgeon at the Medical University of South Carolina in Charleston.

“Degenerative lumbar spine conditions would be more serious but that doesn’t imply that they aren’t treatable or even require surgery,” Geier said by e-mail on Nov. 13.

Most Russians remember guessing about the health of their leaders, from President Boris Yeltsin in the 1990s, stretching back to the 1980s when three Communist Party chiefs died while in office. Soviet leader Leonid Brezhnev was rarely seen in the months before he died of a heart attack on Nov. 10, 1982, with the Soviet government claiming he wasn’t seriously ill.

No Clarity

Even if the secrecy isn’t comparable to those times, the Kremlin won’t provide “complete clarity,” said Roland Nash, chief investment strategist at Verno Capital, which manages $200 million in Russian equities. Anything that threatens Putin’s health “is a cause for concern,” he said.

Putin, who will be eligible to run for another six-year term in 2018, needs to have a clear plan for succession, said Tim McCarthy, who oversees more than $1 billion of assets in Russia and other emerging markets at Valartis Asset Management (ADN) in Geneva.

“They need to have a back-up plan for when they think the main guy is a risk.”

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