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.

Related Articles

Investing in a New Era of Global Tensions

You don’t have to worry about the market and its crazy valuations. That’s your neighbor’s problem, not yours. In building your portfolio, we are aiming for resilience.
Why the Survival and Dominance of Car Manufacturers is Far from Certain

Why the Survival and Dominance of Car Manufacturers is Far from Certain

Today EV sales account for a tiny rounding error of total global car sales. Can traditional automobile companies successfully transition to making EVs?

Next Year in Omaha (2024 Edition)

It is time to plan for my annual pilgrimage to Omaha! I am very sad because, for the first time, Warren Buffett will not be joined onstage by Charlie Munger, who passed away in November.
Putting a Charge Back into the EV Market

Putting a Charge Back into the EV Market

Over the last few months, electric car sales seem to have gone from hot to cold. Are electric cars a fad, like beanie babies, pet rocks, or fidget spinners?

Leave a Comment