Russia Lures Record Foreign Investment by End-June

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Russian foreign direct investment more than doubled to $15.8 billion in the first half of the year as the nation's economic expansion continued to fuel a consumer boom, reported Bloomberg.

Total foreign investment, including credits and flows into the securities markets, soared to a record $60.343 billion, the Moscow-based Federal Statistics Service said in an e-mailed statement today. Foreign investment in stocks and bonds reached $1.103 billion, it said.

``Portfolio investment will decrease in the second half because of the situation on the global financial markets,'' said Anton Struchenevsky, a senior economist at Moscow-based Troika Dialog investment bank, in a telephone interview today.

The Russian economy, the world's 10th biggest, is expanding for a ninth consecutive year, fueling a consumer boom and prompting companies to invest in factories, distribution and sales. Foreign investment in the first half included a $300 million purchase of chocolate maker A. Korkunov by Wm. Wrigley Jr. Co., the world's biggest chewing-gum producer.

Russia will probably receive less foreign capital in the second half as investors move their money from emerging markets because of losses linked to U.S. subprime mortgage loans, Struchenevsky said. The decrease is unlikely to slow Russia's economic growth, he said.

The retail industry, including automotive and household goods repairs, received the highest amount of total foreign investment, according to the Statistics Service. Foreign investors channeled $25.973 billion into the retail industry, including purchases of stocks and bonds, the statistics office said.

The U.K. is the largest foreign investor in Russia after Cyprus, the Netherlands and Luxemburg, according to the Statistics Service. It is difficult to distinguish between foreign investment and investment by Russians whose assets are registered abroad, Struchenevsky said.

Russia received a record capital inflow in the first half, including money channeled into the banking industry, Struchenevsky said. State-run VTB Group raised $8 billion during an initial public offering in May, the nation's largest IPO this year.

Net capital inflow will probably not exceed $15 billion in the second half, easing inflationary pressures, Struchenevsky said. Economic growth, which government officials have said will reach least 7 percent this year, will not slow because it is mainly driven by domestic demand, he said.

The government is unlikely to meet its inflation target of 8 percent this year, according to Struchenevsky. Troika Dialog's inflation forecast is for 8.5 percent at the year's end.

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