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Sept. 17 (Bloomberg) -- A weaker ruble has created some “grounds for optimism” in Russia and the country won’t decline into recession this year, according to Pictet & Cie. Group SCA, Geneva’s biggest bank and asset manager.

Ruble depreciation prompted risk-averse Russians to buy property, boosting house prices in Moscow and St. Petersburg, and new mortgage loans rose 42 percent this year, Hugo Bain, a London-based fund manager at Pictet’s asset management unit, wrote in a note to clients today.

The weaker Russian currency, undervalued by 23 percent versus the dollar, is also helping Russia’s export industries, according to Pictet.

“Given the weakening ruble, we’ve found a curious trend developing: risk-averse Russians are converting cash into real assets, buying up domestic property and pushing up house prices,” Bain said. “Ruble depreciation is also a boon for corporate Russia, where energy, steel and mining industries dominate,” he said.

The ruble has lost 14 percent against the dollar this year, the second-largest decline among emerging-markets currencies after the Argentine peso.

Russia is locked in a standoff with its former Cold War adversaries, who accuse President Vladimir Putin of supporting pro-Russian rebels in eastern Ukraine. Putin has denied the allegations, as the European Union and the U.S. step up economic sanctions and Ukraine accuses him of wanting to restore the Soviet Union.

A cease-fire between Ukraine and pro-Russian separatists agreed on Sept. 5 showed more signs of strain today as rebels questioned further peace talks with the government.

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Bain said “officials close to the government’s strategy” told him on a recent visit to Russia that Putin has “no predetermined goal in relation to Ukraine,” so it’s hard to make long-term forecasts. Putin’s high approval rating, which reached 84 percent in early August, shows Russians retain support for him, despite economic concerns, according to Bain’s note.

Pictet expects Russia to avoid a recession this year, while an increase in government capital investment in 2015 may boost the country’s economic growth rate by 0.5 percentage point next year. A favorable crop forecast and, moreover, a sustained ceasefire with Ukraine would also ease pressures on the economy, Bain said.

Still, gross domestic product contracted in annual terms in June and July amid capital outflows and a slump in investment and Russia may overshoot its inflation target of 5 percent by a “wide margin” this year, according to the note.

Of $74 billion of net capital outflows in the first half of the year, $12 billion came from Russians converting their rubles to dollars in domestic bank accounts, according to Bain. In the third quarter, Pictet expects net private capital outflows to be about zero.

While further easing of geopolitical tensions may boost Russian stocks, Pictet is “cautious” about Russia’s economic outlook and regards a “quick resolution” to the crisis in Ukraine as unlikely.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net To contact the editors responsible for this story: Mark Bentley at mbentley3@bloomberg.net James Kraus, John Simpson

Bloomberg