Russian Mini Economic Boom in 2012

It’s not easy being contrary. But it is where profits are often found.

Take Russia, for instance. It’s a market that has been on a downward slope for much of the year as global investors fret about what’s to come with new elections – now that former-President Vladimir Putin is looking for another tour of duty.

That kindles bad memories of iron-fisted Russian premieres of the old Soviet Union.

And just this month, protestors began taking to the streets of Moscow and St. Petersburg and clashing with police in the aftermath of questionable parliamentary elections.

It’s in moments like these, when non-economic turmoil upsets markets, that you often find the best opportunities.

Russia is the cheapest of all the so-called BRIC nations today. It’s benefiting from what I call “micro booms” – this one in the consumer and in resources and this micro boom means that 2012 will be a good year for Russian stocks.

I was sitting in a small conference room in Zurich, talking with Alex, the former head of private banking in Moscow for a major Swiss bank. Having spent years living and travelling in Russia, he has a knowledge base of the country as deep as Russia’s winter freeze.

Today, Alex still invests in Russia for ultra-high net worth private clients from his office in Switzerland. I searched him out because I wanted a non-American view of Russia.

It’s very easy for American equity analysts to allow cultural prejudices to color their thinking about Russia, especially because of all we’ve gone through with the Great Bear during the Cold War and beyond.

Indeed, Americans like to cut-and-paste their own Western economic and political values and apply them to the rest of the world. That leads them to miss opportunities, because they’re looking at the country through a distorted lens.

Europeans see Russia from a different perspective. And Alex’s take is that “Russia is cheap.”

Back in my hotel overlooking Lake Zurich, I pulled up a list of major Russian stocks to gauge their valuations and see just how cheap they might actually be. And they are cheap – by any measure … and ridiculously so.

I found gads of stocks with P/E ratios in the low- and mid-single digits. The MSCI Russia index, which tracks the market as whole, is now trading nearly 50% below the 10-year average. That’s the kind of cheap that presumes everything in Russia is headed in the wrong direction … but that’s not the case.

Russia is in a pretty good position, economically. Its economy is deeply reliant on oil, and oil-price movements exert big influence on its stock market. At the moment, there are worries about recession in Europe and whether that flows through America and, ultimately, through oil prices.
but that’s the short-sighted view.
America and Europe are busy increasing their money supply, and oil prices will move higher, relative to the dollar – since the two tend to move in opposite directions. And that, ultimately, is good news for the Russian economy and its stock market. 

By Jeff D. Opdyke, Investment Director,

The Sovereign Individual

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2 Responses to “Russian Mini Economic Boom in 2012”

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