BAD START, GOOD FINISH FOR 2009 All of Russia`s investment banks agree that the first half of 2009 is going to be terrible. However, they almost all agree that in the second half of the year Russia should start to recovery. Despite the global slowdown, Russia is expected to be one of the few islands of growth left in the global economy by the end of 2009. The timing of this recovery and return of confidence isn`t clear and as 2008 draws to a close, two big questions remain open: where will the price of oil settle in 2009? And can the government manage a controlled devaluation of the ruble without causing yet another bout of instability? Renaissance says in the preamble to its 2009 strategy paper: "In 2009, Russia`s markets will outperform when the historic levels of disorder in global finance begins to ease. The breakdown in global markets is fundamentally a consequence of structural weaknesses in developed economies. When the liquidity being created globally to combat the crisis begins to feed into risk assets, emerging markets in general, and Russia in particular, will benefit disproportionately." Uralsib makes a similar point, arguing that Russia`s lack of integration into the global market gives it a measure of protection from the global slowdown, while the momentum of the internal growth built up in the last years will be pushing the economy towards recovery. But this recovery is not certain. UniCredit says in its strategy report: "We see two major factors shaping investors` attitudes toward Russia over the next 12 months - oil prices and the ruble exchange rate. Without at least some stability in both of these factors, we believe the Russian markets will be unlikely to sustain a rally, even in the short term." Clearly, if the oil price remains at the sub-$50 per barrel that it was at the end of 2008, then the value of the ruble will have to fall some 15-20% and until this happens, investors will stand on the sidelines as an uncontrolled devaluation could inflict a fresh round of chaos on the economy. However, analysts agree that the issue of finding a new value for the ruble will be resolved early in 2009 and set the stage of the subsequent rally. UBS sums up what most of the investment banks are saying in its strategy: "In our view, Russia is a special case in the emerging markets block. Markets have sold off heavily and the [central bank] has lost $115bn of reserves (net of valuation changes) since August, but from a macro point of view it is actually quite difficult to find much wrong with Russia. Yes, the economy will slow down, given less available foreign money and, yes, the economy was overheating and inflation had increased, and, finally, Russia is indeed a commodity-based economy that is experiencing a negative terms of trade shock. Still, none of this, in our view, can explain the reserve loss or the way markets have sold off."