Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT Ponzi Scheme FINAL WARNING To EXIT Before Tether Collapses Crypto Exchange Markets - 22nd Jun 21
Stock Market Correction Starting - 22nd Jun 21
This Green SuperFuel Could Change Everything For the $14 Trillion Shipping Industry - 22nd Jun 21
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

There's Value Investing in Russia's Future

Stock-Markets / Russia Feb 14, 2012 - 02:22 AM GMT

By: Frank_Holmes

Stock-Markets

Best Financial Markets Analysis ArticleAs Americans ponder the merits of Obama vs. Gingrich, Paul, Romney or Santorum, Russia will be electing its own president on March 4.

Perhaps we should say "re-electing" since it's almost certain former president and current prime minster Vladimir Putin will be elected. While protests and vocal opposition likely won't prevent Putin's presidential return, they have forced some interesting changes to the political climate and we've observed some positive changes in Russia's investment landscape.


The story begins last December when Putin's political party, United Russia, performed poorly in Russia's parliamentary elections. According to official election results, United Russia retained only 238 seats (down from 315 seats) in the 450-member State Duma, the lower house of the Federal Assembly of Russia.

While these results struck a blow to United Russia's parliamentary power, it was an uppercut to democracy in Russia as suspicions of fraud emerged following exit polls that predicted an even wider defeat. Another one-two punch combination for Russian democracy came when Putin said he had planned all along to swap seats with President Dmitry Medvedev in 2012.

This did not sit well with many young Russians who were raised with the hope of a democratic Russia, compelling them to take to the streets to voice their opposition.

In an effort to gain popularity among these protesters, Putin announced that he would introduce a one-time tax on oligarch companies that acquired state assets during the privatization of Russia in the 1990s following the fall of the Soviet Union. Privatization helped Russia shift toward a market economy, but it is widely believed that only a few well-connected people (business oligarchs) benefited and caused the wealth gap to increase substantially.

"An overwhelming majority of Russians think--with some justification--that the 'loans for shares' assets were sold at substantially below their market value ... In other words there is unlikely to be much domestic opposition to this proposal," says Morgan Stanley.

Putin's one-time windfall tax appears to be based on the U.K. approach, says Morgan Stanley. In 1997, the U.K. imposed a one-time payment on the owners of assets acquired during privatizations in the 1980s. The tax was 23 percent of the difference between the purchase price and the average net profit during the first four years following privatization, multiplied by the factor of 9.3. This resulted in an extra $8 billion for the British crown, according to Morgan Stanley.

The tax is a political risk in Russia, especially for the oligarch-owned businesses. However, our team has always preferred self-made businesses as the owners generally have their own skin in the game.

To understand the complex political situation in Russia, it helps to hear many sides of a story, so last week we sent Tim Steinle, co-portfolio manager of the Eastern European Fund (EUROX), to Moscow in advance of the historic presidential election. While in Russia, Tim had the opportunity to hear Alexey Navalny, a leader of Russia's opposition movement, give his side of the story.

Navalny coined the name "the party of crooks and thieves" that became popular for United Russia. According to a profile by The New Yorker, when United Russia threatened to file a suit against Navalny for slander, he posted a poll on his blog asking readers whether they thought United Russia was a party of crooks and thieves--Ninety-six percent of his readers agreed with him.

Trained as a lawyer, Navalny has positioned himself as a defender of minority shareholder rights against state-owned companies. He alleges a theft of $4 billion from pipeline operator Transneft that the government refuses to prosecute. In addition, Navalny points out that few management boards have independent directors, and even though by law just 2 percent of shareholder votes are sufficient to nominate a director, all nominations are done by the state. Even relatively investor friendly Sberbank has only one independent director out of 17.

Tim says there is a yearning for positive change among the reform-minded intelligentsia, the name given to Russia's intellectual social class. The intelligentsia also pushes for a fair playing field and registration for political parties and a free media.

Navalny compares gains by communists and socialists in the recent election to political dynamics in Eastern Europe in the 1990s, when the pendulum swung to liberals and back. In his view, this is a healthy development, as the economic platform of Communist and Just Russia parties are not that different from United Russia.

Navalny wages a battle of a thousand cuts to increase the stress on the regime he says is "on manual control." Historically speaking, reformers such as Kruschev, Gorbachev, Yeltsin, and Putin came from within the system. Navalny is clearly on the outside looking in.

Tim also sat in on a discussion with former finance minister Alexei Kudrin, who served as Russia's minister of finance from 2000 until September 2011. He was the longest-serving finance minister in post-Soviet Russia, credited with prudent fiscal management and a champion of the free market. He helped Russia weather the global financial crisis in 2008 by creating finance reserves which held a portion of the revenue from oil exports in a stabilization fund despite strong opposition from others who wanted to spend the money. Those savings were crucial to Russia's economy when the crisis hit and oil prices dropped.

Over the past 10 years, Russia's GDP grew at a robust pace of 7 percent annually and Russian companies greatly benefited from profits reinvested in their businesses. Russia's growth story now turns to value as Kudrin expects Russia to grow at a much slower pace, averaging around 4 percent.

We have seen this transformation in some Russian companies lately. Domestically, we have looked for growing, profitable and well-run companies that demonstrate significant growth in three key areas: revenue, earnings and return on equity.

Russian companies have not usually met the criteria, but when we run this screen today, we see that many large-cap businesses are showing significant revenue growth, earnings per share growth and return on investment. Additionally, many of these companies can be purchased at the lowest valuations they have been at in three years. Whereas the price-to-earnings ratio for the Russian MICEX Index has averaged near 10 times since 2003, it is currently at 5 times.

Russian MICEX Index Price-to-Earnings at 3-Year Low

Increasingly, Russian companies have begun paying dividends too, with some companies paying as much as a 10 percent annual dividend. As interest rates around the world will remain low or even negative for years to come, dividends offer investors the opportunity to earn income with the potential of appreciation.

Although political risks remain, we believe the country continues to be a hotbed of opportunity for emerging market investors. For the Eastern European Fund (EUROX), we'll continue to seek self-made businesses that pay dividends. These companies generally are run by owners who have invested their own capital and have a track record of growth.

For more updates on global investing from Frank and the rest of the U.S. Global Investors team, follow us on Twitter at www.twitter.com/USFunds or like us on Facebook at www.facebook.com/USFunds. You can also watch exclusive videos on what our research overseas has turned up on our YouTube channel at www.youtube.com/USFunds.

By Frank Holmes

CEO and Chief Investment Officer

U.S. Global Investors

U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.

Frank Holmes Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in