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Investing in Today's Russian Economic
Boom |
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Published:
December 17, 2007
Russia is back, and today's
investors have a rare chance to
invest in a country that may very
well become one of the world's
greatest economic turnaround
stories. The country has gone from
default and disaster to economic
powerhouse in just one short decade,
and investors who know what to look
for can find a multitude of
outstanding investment
opportunities. . .
A Bit of Russian Economic History
Ten years ago, Russia was "on the
radar" of international investors.
Its stock market was surging over
+200% per year, inflation was
falling sharply, and the economy was
growing at a fast clip. Russia was
finally emerging from its
post-Soviet economic malaise, and so
foreign investment
money began pouring in.
But on August 17, 1998, the Russian
government defaulted on its debts,
and the ruble collapsed in value
just a few short weeks later. The
government also declared a
moratorium on paying foreign banks
and creditors. Investors lost
billions as the value of bonds fell,
and the stock market collapsed by
-90%.
What happened? Well, there's no easy
answer, but the Russian government's
dependence on tax receipts from
ever-cheapening commodities, a
massive debt burden, the Asian
currency and debt crises of 1997,
and difficulties in tax collection
and economic regulation (thanks to a
large black market economy and
widespread corruption) all
contributed. Russia slipped into an
economic coma, and investors moved
on to greener pastures.
The New Boom
Now, a decade later, Russia is once
again enjoying a financial boom -- the most obvious reflection is its
stock market's meteoric rise since
2000 (growth of more than +1,000%).
Inflation has steadily fallen, and
GDP growth has averaged +6.9% for
the past three years. But is this
rally for real, or will it just end
in disaster again?
To us, the evidence indicates that
today's Russian rally is for real.
For example, President Vladimir
Putin may be a controversial figure
in the West, but he has undertaken
some necessary reforms for the
Russian economy. His dramatic
overhaul of the tax system, for
instance, has lowered incentives to
evade taxes and has boosted
collections -- in turn lowering the
country's debt burden to nearly
nothing. Furthermore, the Russian
government has adopted a budget
framework that will force Putin's
successor to maintain fiscal
discipline -- helping to sustain
growth for the long run.
Of course, Putin has also received
some help, mainly in the form of
higher commodity prices and
increased crude oil production over
the past decade. This in turn has
sent tax revenues soaring. As a
result, the Russian government now
has $356 billion in foreign exchange
reserves and more than $100 billion
in an oil stabilization fund, which
should help soften the blow should
another economic disaster hit. In
fact, Russia's currency reserves are the
third-highest in the world -- a far
cry from when the nation was
desperately seeking cash from the
International Monetary Fund and other foreign lenders a
decade ago.
How Can I Invest in This New
Russian Economy?
There's no doubt that today's Russia
looks far more sustainable than it
did a decade ago. Russia has a
stronger currency reserve base, a
smaller debt burden, a floating
currency, real economic reform and commodity prices
that are
likely to stay high. With all of
this in mind, Paul Tracy, editor of
the
StreetAuthority
Market Advisor
newsletter, believes that Russia's
economic growth will power strong
returns for investors in coming
years.
And in the latest issue of
Market Advisor, Paul
provides detailed rundowns of six
promising companies and closed-end
funds that have meaningful exposure
to the growth of the Russian market.
Although a few are natural-resources
plays, Paul's picks span the
spectrum, from consumer goods to
telecommunications, and most are
experiencing fantastic double-digit
growth rates! In fact, one pick has
already returned +41% annualized
over the past five years and shows
no signs of slowing down now. To
learn about these picks, and to
learn more about the
Market Advisor
newsletter, please
visit this link.
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