This week I was assisting in finalizing a large fuel deal with Lukoil and it made me think of Russia. Russia is one strange enigma of a country.
Russia has tremendous potential for growth, and is a part of the BRICS (Brazil, India, China, South Africa and Russia) alliance, which has been flexing its muscle recently. It has also been one of the laggards in the group.
The challenge with Russia isn't what you know, but what is the unexpected that you will never know until it occurs.
The deep level of distrust in its judicial system as well as lack of transparency has been a killer in the enthusiasm of rushing into the country to do business. The often high profile persecutions of Russian businessmen by the government don't instill confidence in the business environment over there.
However, it doesn't preclude us from considering investing some of our risky capital to extract gains out of the success that Russia has been enjoying. The Russian economy is highly dependent on the price of oil and what happens to oil prices, happens to Russia.
While we saw oil soar to the $110 level in the recent weeks, we have also seen a sharp decline in the past couple of weeks. And right in time for Memorial Day. A coincidence? I will let you answer that question.
What has been fascinating is to watch the invisible bottom under oil prices in the past few weeks. While the world will go through bouts of confidence and then lack thereof with Europe and its debt problem, we haven't seen oil dip much below the $95 mark.
Now I am not saying it will not do so, but I am suggesting that there are many interests at play here and vested parties are not allowing oil to fall much lower.
So while Russian economy took a bit of a beating in the past few weeks, it has been showing signs of life as well. April retail sales rose by 5.6 percent year over year.
While the expansion of the sales was not rounded off by increases in real wages or disposable income growth, it still has been a robust increase. I do fully expect the real wages growth numbers to be revised soon. So I do expect to see further growth numbers coming out of Russia.
While the growth remains steady, I am also encouraged to see that the unemployment numbers in Russia remain steady at the 7.2 percent range. Given that the Labor Department statistic gathering methodology is less than optimum, I am confident that we will see real gains there soon.
The growth in investments has also finally turned and we are seeing positive growth again. In April it grew by 2.2 percent and with the government generating surpluses, this number is also going to shoot upward. And that will have a significant roll down effect across the overall economy.
So, with oil prices indicating a bottom with a potential to start another runup toward the latter part of summer, and the internal economic machinery within Russia showing signs of revival, I fully expect to see the Russian economy fire on all cylinders in the latter part of the second half of the year.
While investing directly in Russia is fraught with risk, you can participate in that growth from the safety of your regular investment accounts. There are a few Russian Ruble ETF’s that you can find trading in the US. They trade the same as stocks and are easy to buy and sell.
You would be well advised to consider dipping your toe in with risk capital to participate in the coming Russian growth story by buying the Russian ruble.
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