Friday, November 30, 2007

Get out of Russia!

One of investment rules of Jim Cramer: Politics influence economics. Nothing is more clear than Russian politics right now (well, for most of people, anyway). Consequences of such politics for Russian economy:

1. More government control of economy. Usually a sell signal. Example: government just created a new corporation, "Rostekhnologia", with assumed goal of technology development. Real goal is increased control, which, of course, would stifle any development. The joke from Soviet era: How to make sand in Sahara hard to find? Answer: Give control of it to Gosplan (Soviet planning agency).
2. More corruption. Sell signal.
Little bit more about it. Many people assume that destruction of (some) Russian oligarghs is an anti-corruption fight. Wrong! The only oligarghs destroyed (Berezovsky, Khodorkovsky, Gusinsky) are those who are in opposition to the current regime. Everyone else still enjoys life. Message: you can be as corrupt as you like if you are with us. Which also means that govenment officials will become more and more corrupt with the time. Tame media and lack of political opposition equal corruption.
3. Rampant anti-americanism in 1970s style. It might be a news for some Americans, but you can't read Russian press now without reading a lot of stuff which would make Valentin Zorin blush (for those who don't know, Valentin Zorin was a 1970s TV guy in USSR who built his career on antiamericanism). It's unbelievable what crap you can find even on so-called moderate sites, like or Antiamericanism itself is dangerous economically, but it also can be a basis for expropriation of property. Sell signal.

Based on politics, the following strategies are prudent:

1. Sell Russian ETFs and CEFs: RNE, TRF, RSX
2. Sell CEF with big investment in Russia: CEE
3. Sell ADRs of Russian companies: VIM, MBT
4. Be careful with companies which have significat investments in Russia: TOT, ENI, RDS-B.

Russia is known as part of BRIC, economies with fast development. Russian ETFs, CEFs and ADRs made a ton of money lately for investors. And it's possible that Russian economy would still develop fast in dangerous political environment. There is a relatively safe strategy to make money on such development: buy companies which produce things Russia just have to buy abroad. There are a lot of good companies with such products: CAT, BA, VOLV etc.

Full disclosure: At the moment of publication, author did not have positions, long or short, in any of above mentioned stocks, although positions may change at any time.

Disclaimer: This article is not intended as investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

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