Loading...
Symbols:
Authors:

RSX and Russia's Escalating Risk Premium

by: Carl T. Delfeld August 28, 2008 | about stocks: RSX    
Carl T. Delfeld

Carl T. Delfeld

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

The Russian market (RSX) is now down 36% since May and trades at about a 25% discount to the emerging market index on a price to earnings basis. Unfortunately, global investors are viewing Russia with a jaundiced eye as it overplays its hand in the high stakes poker game of power politics. According to the Russian Stock Market blog, once again Wednesday the domestic bank names led the decliners under ongoing pressure from problems faced by the American financial sector, as Sberbank dove 6.8% and Bank Vozrozhdenie plunged 8%.

Its decision to confront the the west will do little immediate damage to its economy - $1bn a day is still flowing in from exports of oil, gas, and oil products. But the fallout from its knee-jerk actions to growth, to credit markets and its perception of risk may be enduring. There are other plays on energy without the risk.

Since 2000, Russia’s pitch of high energy revenues and a consumer boom was compelling. Mr. Dmitry Medvedev seemed to build on this by highlighting an agenda of battling corruption, establishing the rule of law, and lessening reliance on energy by aggressively promoting new technologies.

This agenda seems dead while Russia's dormant expansionism seems alive.

Related Articles

This article has 2 comments:

  •  
    Aug 31 07:44 AM
    Timely article and superb wrap up quote from camquin. My take precisely. Playing games with oil and gas delivery with the west is economic suicide. If this behavior doesn't drive the west to alternative energy and suppliers, what will?. Partnering with russia is a losers game and I would suspect that russia will see doors slamming in its face when it tries to buy up companies and arrange long term supply contracts. So much for their economic boom. Time to short?
    Reply
  •  
    Sep 02 11:42 AM
    Good article. I have to add that oil extraction is declining in Russia this year. Natural gas still flat, but if my estimates are correct, would go down soon. The problem is, gas industry is nationalized (don't ever confuse Gazprom with public company) and oil is nationalized too, for all practical purposes. Western oil companies were cheated of their projects several times and are not going to invest big in Russia anymore. When this process ended up in nationalization of the most of oil fields under Rosneft, I thought it would take Kremlin bureaucrats at least couple of years to kill the goose. I was wrong, those guys are working fast. If my another forecast is right and Russia will start throwing much more money on military, no sanctions are needed. Economy will nosedive.
    I still think that Russia is between sell and sell short.
    Reply
More Comments on RSX ยป
More by Carl T. Delfeld

Investment Resources
Money Management 

Research 

Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Eastern Europe 

Asset Allocation with ETFs 

Closed-End Funds 

Commodity ETFs