Investing In Russia

[Mark Heide]

I was listening to a show on public radio about the current situation in Russia. It appears since the ruble was devalued after the crash in 1998, Russia is rebounding at a growth rate of 9% a year. But, they said that this was due to not importing foreign goods and being able to sell oil at the current high rates. So, is anyone investing in any Russian funds?

Mark

[Ray Zee]

in any corrupt society as is russia presently, you cant make any money on the outside. the stock holders wont get the rewards for the risks. so to invest in russia , buy stock in american companies or british ones that do a large portion of their business with them and be prepared for big swings in the stocks.

[brad]

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being able to sell oil at the current high rates.

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fwiw i heard theyre going to switch to payments denominating in euros instead of US dollars (for oil). no link but shouldnt be too hard to find.

not sure all the ramififcations just thought id post.

[adios]

Russian govt bonds have high yields and are considered emerging market bonds. The closed end mutual fund AWF has a decent percentage in their portfolio in Russian bonds. Emerging market bonds have been used as a way to hedge against the decline in the dollar. I trade AWF FWIW. There are other CEF's as well that invest in Russian bonds. Currently out of AWF but it's attractive at these prices IMO.

[MarketFishy]

Hi Mark,

I travel to Russia regularly because my family owns some businesses there, here are some info from my point of view.

Apart from selling oil and other natural resources, the economy is still very far behind, productivity and technology is not very good.
GDP growth is about 4% all from oil. The shares have already gone up 600% since the 1998 crash when many investors lost all their money miscalculating a recovery, even Soros lost over $2billion. Prices are considered overpriced for its risk by most fund managers.

The risk of another crash is high, recently this month directors from major oil company Yukos was arrested for tax evasion and plots to murder oppositions. Yukos main owner is supportive of groups opposing president Putin. The industry is at risk of being nationalised aand it's directors replaced by Putin.

A similar event happened in Ukraine, just before the elections, Kuchma closed down his opponents media firms due to tax evasion, now in Ukraine, everybody can be accused of tax evasion since official laws are ambigous and officially over 100% profit, so everybody pays "tax" unofficially instead.

Many directors are also jailed for stealing from company, fraudulent shares, and theft from bank accounts.

The more reasonably priced shares may be the energy and autos, energy are going through liberisation and prices predicted to go up, and Russia increased tax on foreign import cars so that should be good for domestic. But bear in mind many ppl in Russia work for no wages and won't quit for losing their pension, most industries are highly inefficient and losing lots of money while the share prices had been driven up by crazy US funds:)

It is best to avoid emerging markets if you know little about it, most emerging market funds had been wiped out this decade, those remaining are negative 30-40% return.

Some fund managers recomend diversifying abroad due to it's low correlation with US markets but that's like placing your money in roulette for diversification. It is foolish to invest these places if you don't understand it's economics, politics, cultures nor businesses. Overall highly negative ev with very rare exceptions.