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. Last Updated: 07/27/2016

Kudrin Warns of Bubble

Finance Minister Alexei Kudrin said on Wednesday that speculative foreign money seeking high returns risked creating a bubble on Russia's capital markets.

High prices for oil, the country's main export, have fueled liquidity-driven buying as a global savings glut has increasingly flowed into emerging markets in search of returns.

"In Russia, a new danger has arisen. It is connected with the fact that ... the yield on Russian investments on the stock market is higher than in the West," Kudrin told a State Duma hearing.

The market is also banking on appreciation of the ruble compounding revenues on investments. "There are elements of a bubble," he added.

Last month, the RTS index of dollar-denominated stocks topped its previous April 2004 peak and later bounded higher still to set a new record high, above 900 points, although it has since retreated slightly.

Foreigners are also scooping up semi-sovereign ruble bonds, like city of Moscow or gas monopoly Gazprom, to the extent that locals complain they have driven up prices, forcing them out into riskier debt.

Kudrin also said that the government could plow interest savings from the early redemption of its foreign debts into a state investment fund.

"If we repay further external debt either this year or next year, then we can augment the investment fund with interest savings already next year," Kudrin told the hearing.