Monday, April 20, 2015
As predicted, Obama loses another one. Russian economy recovering nicely
Today, the answer is becoming clear—and it’s not the one the West was hoping for. Not only is Putin still standing, but the Russian economy, against most expectations, is recovering. Its stock market is one of the best performing globally this year; the ruble, after losing nearly half its value against the dollar over the course of a year, is rebounding; interest rates have come down from their post-sanctions peak; the government is taking in more revenue than its own forecast expected; and foreign exchange reserves have risen nearly $10 billion from their post-crisis low.
What’s bailing out Moscow? For the second time in two decades, Russia is showing that while a sharp drop in its currency’s value does bring financial pain—it raises prices for imports and makes any foreign debt Russia or its companies have taken on that much more expensive in ruble terms—it also eventually produces textbook economic benefits. Since a devaluation raises import prices, it also paves the way for what economists call “import substitution,” a clunky way to say that consumers switch to buying less pricey products produced at home instead of imported goods.
Well I told you so. This has been a classic case of contrarian investing. Buying when there was massive pessimism about Russia has yielded a tidy return so far. It will get better as oil prices continue higher and the EU diverges from the US regarding extending sanctions. I still consider Russia a buy.