Russia? Think Again

As you look at the high-flying Russian stock market, you may feel like you want some of it. But before you dive into Russia consider this: as it is, Russia is a dysfunctional play on high oil prices as well as commodities. It is no less bureaucratic than it was some fifteen years ago.

Russia Think Again

As you look at the high-flying Russian stock market, you may feel like you want some of it. But before you dive into Russia consider this: as it is, Russia is a dysfunctional play on high oil prices as well as commodities. It is no less bureaucratic than it was some fifteen years ago.

When you buy a Russian company, with the exception of Gazprom (OGZPY), you run the risk that the Russian government will decide it “wants it,” the same way it “wanted” the Yukos and Sakhalin project from Shell (RDA). Gazprom is a unique case since it seems the whole country’s foreign policy is written in the Gazprom HQ for the benefit of Gazprom and Gazprom alone. When one of the former republics has a dispute with the company about its pipelines or prices, the Russian foreign ministry gets involved. I guess the fact that Gazprom is owned in part by Russian government and remains one of the largest sources of tax revenue in the country certainly makes it Mother-Russia’s business. Gazprom’s play is limited to several factors: it’s a cheap stock (if you trust the reserve numbers); it has been raising natural gas prices in former Soviet republics to market rates; in some cases it is receiving shares of local gas distribution companies in lieu of payment. But in the long-run, I wouldn’t bet on higher production from Gazprom because its capital expenditures are allocated from the Kremlin, whose objectives are more short-term oriented.

Current Russian prosperity is completely driven by high commodity prices. Take the $60 oil away and what you get is a very backwards economy, poor infrastructure (especially outside Moscow and St. Petersburg – two cities that are swimming in oil money), very high pension liabilities that the country accrued to its seniors during the Soviet days, corrupt local governments and a fairly unstable political system. If you are interested in playing on high commodity prices you might consider (non-Russian) oil services stocks (e.g. GSF, HAL, SLB, BJS etc.) – it’s the same reward or better and lower risk.

Please read the following important disclosure here.

Enjoyed this read?

Share it with someone who’d love it too!

Related Articles

A Value Investing Lesson from the Blackjack Table

A Value Investing Lesson from the Blackjack Table

Over a lifetime, active value investors will make hundreds, often thousands of investment decisions. Not all of those decisions will work out for the better.
Q&A Series: Diversification and Position Sizing in Investing

Q&A Series: Diversification and Position Sizing in Investing

Today's excerpts from Q&A session I held in Omaha focuses on crucial investment strategies: diversification and position sizing in investing.
The Hidden Advantages of Investing from NOT New York City

The Hidden Advantages of Investing from NOT New York City

What are the hidden advantages of living away from “noisy” investing centers like New York? 

Money Managers Are Not Factory Workers

One of the biggest hazards of being a professional money manager is that you are expected to behave in a certain way.

Leave a Comment