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What Russia’s New Prime Minister Means for Markets

Áine Quinn

(Bloomberg) -- Russia’s bonds and the ruble parted ways on Thursday as traders digested the appointment of a tech-savvy tax service veteran to head the government.

Yields on local-currency OFZ bonds almost erased the spike seen Wednesday evening, when news of the government revamp and Mikhail Mishustin’s appointment broke. Observers highlighted Mishustin’s success modernizing Russia’s tax service, while Finance Minister Anton Siluanov said the new prime minister will “create a team of like-minded people.”

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Meanwhile, the ruble traded weaker on Thursday evening, losing 0.4% to 61.6375 per dollar. Some analysts predicted profit taking amid the uncertainty before the new prime minister unveils his cabinet.

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Here’s what analysts and economists are saying:

Evgeny Batuev, trading department head at SKB Bank in Yekaterinburg

“It looks like OFZ investors have decided everything is OK. Mishustin sorted out tax collection, in particular VAT -- in other words he knows how to handle complex processes”“The main thing is that he doesn’t just focus on tightening things up in general, but actually gets on with steps that will spur economic growth”

Jacob Grapengiesser, partner & head of eastern Europe at East Capital in Moscow

“We expect that the focus on efficiency and growth will be renewed, something clearly positive for the Russian investment case”“If anything this offers more upside to the Russia story,” which typically centers around a stable economy and “unjustifiably low valuations” on stocks

Sergei Strigo, co-head of emerging-market debt and currencies at Amundi SA in London

Government changes are “neutral for the market. What is important is political stability and continuity”Important signals will come from appointments to key posts in the new governmentSees ruble trading in the range of 60-65/USD in the next few months

Sébastien Barbé, head of emerging market research at Credit Agricole

“The government’s likely focus on investment should support yields and the ruble’s carry attractiveness”“Once the ruble stabilizes, investors may feel the timing is right to add to the ruble carry trade”

Piotr Matys, emerging-markets strategist at Rabobank in London

“The unexpected government reshuffle is a source of short-term political uncertainty,” and the ruble may stay weak until Mishustin announces his cabinet

Alina Slyusarchuk, economist at Morgan Stanley in London

New government spending measures would support consumers, but “policy continuity is not certain”Uncertainty over government spending plans might make Russia’s central bank more cautious and weigh on corporate investment decisions

--With assistance from Anya Andrianova and Olga Voitova.

To contact the reporter on this story: Áine Quinn in Moscow at aquinn38@bloomberg.net

To contact the editors responsible for this story: Alex Nicholson at anicholson6@bloomberg.net, Natasha Doff

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