In this report, we raise our base cost of equity (CoE) by 80 bpts to 12.5% following large-scale public protests against alleged falsifications in the results of the 4 Dec Duma elections. Our preferred measure of Russia’s country-risk premium (10Y CDS multiplied by the excess volatility of the RTS Index over the S&P 500) has risen since our last revision to our base CoE in Jan 2011, and hence warrants an upward adjustment. Although we see little in common between events in Russia and movements in the Arab world and the protesters may be too disjointed and weak to lead a meaningful opposition, it would nevertheless appear that political risk will for the foreseeable future continue to be a relevant factor in investors’ attitudes toward Russia.
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