úterý 11. března 2014

Russian Crises Presents an Investment Opportunity


Russia - Next Big Opportunity

Buy when others are fearful is good advice by Warren Buffet. If you are looking for situations like this than you should look at Russian equities. Since the Ukraine crises the Russian equities sold off sharply. And I believe that unless the situation dramatically changes (Russia invading other parts of Ukraine) we might see a bottom of the valuations this week.

Putin cares about his image. He invested 50 bln USD at the Sochi event to promote his and Russia image abroad. And I believe that he was quite surprised by the West reaction to his Ukrainian adventure. Until now he got away with everything - defaulting on his debt, almost eliminating Chechnya from the map, and steeling part of Georgia territory. West did not move much. He is surprised it is different this time. Now he has ruined his image in the West and equally importantly he scared all his former USSR allies, such as Belarus and Kazakhstan, who were integrating their economies with Russia. He runs a big domestic propaganda that he got Crimea and he can not back away from it. What will he do now?

1. Until the referendum there will be no talks between Russia and Ukraine or allies. Russians have nothing to talk about, as they are going to steal their neighbor's territory. West can not do anything, sanctions would backfire due to highly globalised world.

2. After the referendum the negotiations will begin. Russia will try to legalize the stealing of Crimea and will be offering recognition of Ukraine government in exchange. Ukrainians have given up on Crimea, they had to subsidise it heavily every year and the place never integrated. Ukraine is concerned about further attack and will after some dances find an agreement with Russians.

3. It will be a lengthy process. I believe that once the direct negotiations between Ukraine and Russia begin the Russian equity market will start to go up, as the markets will take the risk as significantly decreased.

I have started to build up my portfolio. My Russian favorites are Mail.ru, Yandex, Alrosa and Epam Systems.

Disclosure: I am long YNDX, EPAM, MLRUY.