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Invest in Russia 2008

Stock-Markets / Russia Jan 04, 2008 - 11:36 AM GMT

By: Yiannis_G_Mostrous

Stock-Markets

Best Financial Markets Analysis ArticleI've long favored Russia as a destination for investment, building my case primarily around its energy sector. But I've also highlighted the increase in domestic demand and the infrastructure boom taking place there.

Russia is currently in a sweet spot: It's a net oil exporter, has good GDP growth, isn't dependent on foreign capital flows, is relatively stable politically, boasts reasonable market valuations and, above all, enjoys solid exposure to the biggest growth story of our time, Asia.


President Vladimir Putin, whose party won another electoral victory recently, is credited with making the changes necessary for Russia to advance. The Yeltsin years, by contrast, were essentially a lost decade; Russia had no direction and no clear vision of its future.

Because of the changes Putin has pushed, Russians are confident and more open to doing business with and learning from the rest of the world. These factors were lacking in previous cycles. Note that this cooperation doesn't include selling Russia's natural assets to foreigners or their local representatives, as previous advisors had once counseled.

As a result, the Russian market has easily outperformed the rest of the BRIC (i.e., Brazil, Russia, India and China) countries since 2000.

This outperformance flies in the face of the rubbish eager politicians and their advisors have been feeding people about the beginning of a new Cold War. Heeding the expert opinions expressed during the past seven years in The Economist and other publications heralding an imminent Russia collapse would've cost you the huge returns the Russian stock market has generated for investors willing to look beyond smoke screens.

The economic interdependence between the growing Russian economy (now the eighth-largest in the world) and the West is increasing rather than subsiding. (See Growth Engines , 7 June 2007, Vladimir and Angela .) It won't be a smooth ride, but cooler heads will prevail. Russian practices haven't changed overnight--far from it. But things are looking much better, and the positive news should continue.

The Russian economy surprised to the upside in the third quarter of 2007, with growth of 7.6 percent on a year-over-year basis. This growth is mainly driven by domestic sectors, especially the machine building sectors, which shouldn't be too exposed to a sharp slowdown in global growth.

The Russian market is currently trading at a discount in most sectors to its emerging market peers. Given the fact that the Russian economy is well insulated from outside economic shocks and its financial institutions have no exposure to subprime problems, this divergence remains a mystery to me.

The only serious economic problem that Russia will face entering 2008 is the recent inflation acceleration, which could rise into the mid-teens next year--a symptom of strong domestic demand.

Such a development will permit the Russian Central Bank (CBR) to allow for a faster appreciation of the currently undervalued ruble, which will also help the economy's domestic demand growth as its middle class continues to expand.

As long as Russia continues to grow and modernize its economy and its middle class increases in size and influence, its political culture will also increasingly reflect more Western-style characteristics.

Nevertheless, Russia remains open for business. Companies and investors that play by the local rules--as they must do in any other country they invest in—haven't only profited handsomely but have also established strong foundations for the future.

By Yiannis G. Mostrous
Editor: Silk Road Investor, Growth Engines
http://www.growthengines.com

Yiannis G. Mostrous is an associate editor of Personal Finance . He's editor of The Silk Road Investor , a financial advisory devoted to explaining the most profitable facets of emerging global economies, and Growth Engines , a free e-zine that provides regular updates on global markets. He's also an author of The Silk Road To Riches: How You Can Profit By Investing In Asia's Newfound Prosperity .

Yiannis_G_Mostrous Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Buba
08 Jan 08, 12:51
Amazed at Russia Commentary

I’m amazed at all the western “economic gurus” writing about Russia. Have author ever visited Russia? Does he knows that it just slightly above Nigeria in corruptions ratings? Des he knows how real Gasprom balance sheet looks? ridden with dept? Rumors are that Gasprom uses borrowed fund to show as profits.

It is on of only 2 countries in the world that have dying population while growing GDP, another one is Nigeria.

Has he bothered to read Russian CB statistics on state’s debt held by nonresidents?

Find it here: for 2005 and 2007 for example, it has DOUBLED in 2 years!

If don’t read Russian the very first line in the table is total debt by month I billions: January 1 2006 – $257.2; October 1 2007 – $430.9

2005

http://www.cbr.ru/statistics/credit_statistics/print.asp?file=debt_05.htm

2007

http://www.cbr.ru/statistics/credit_statistics/print.asp?file=debt_07.htm

Does he knows about Ford’s troubles with it’s newly build plant?


Mescovic
19 Jan 08, 03:19
Russia

Dear god the above post is so very Ignorant. Russia does not have dying population that just myth. Have you ever even been Russia? Or seen any statistics there a increase surplus population now.


Rheesa
07 Feb 08, 02:45
Russian Commercial Property Boom

As it happens. . . I am an American living in Moscow. While I am quite aware that Moscow is a micro-economy compared to much of the rest of the country, I am also aware that many companies are currently trying to source jobs to regions further away from Moscow and the Moscow region to reduce costs. What this translates to is an increased demand (in outlying regions) for both commercial and residential real estate development, as well as increased demand for necessary and luxury goods. As business and manufacturing are established in these regions, there will be increased population growth in these regions as well. There will be an increased need for modern infrastructure, and developers are looking more and more to foreign capital to meet these needs.

I would, as an investor, be wary of any developer offering 40 or 50 percent returns in a very short period of time. However, with a little homework, investors can find solid investment opportunities. Just make sure the company you are dealing with is reputable.


Russified
08 Apr 08, 21:15
Record power demand

I've come across this article and all I can say it positively stands among the murky rhetoric of "rubbish eager politicians and their advisors have been feeding people about the beginning of a new Cold War". Well done! I am tired of being inculcated by these paranoid cliches that Russia's population is dying, we are on the brink of a new cold war, Russia relying only on commodity ponies, etc., etc. Recently, Russia has registered another record demand for electric power to feed their booming industries:

http://www.investrusska.com/showthread.php?p=308#post308

this is the highest demand point since 1991! Dying population can't consume that much, it is a turning point in their history and a lot of politicians and short-term experts do not understand this.


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