Sunday, August 13, 2017

Russia sees recovery accelerate

Business Times:

Russia's economy expanded by 2.5 per cent in the second quarter, up from 0.5 per cent in the first quarter, as the country gradually recovers from two years of crisis, the state statistics service said Friday.

(snip)

Russia's central bank trimmed its interest rate by 0.25 percentage points to 9.0 in June, noting that "economic activity is recovering." Central bank chief Elvira Nabiullina in June gave a more conservative prediction for annual growth of up to 1.8 per cent.

In the longer term, economists and the Russian authorities fear that growth will falter unless there are structural reforms to reduce the country's dependence on oil and gas exports.

The stabilization of oil prices at around $50 a barrel along with an overall strengthening of commodity prices has also helped the Russian economy.

The new sanctions and the continued demonization of Russia by the US is certainly going to cap sentiment towards Russia and cap returns.

Nevertheless, Russia is a huge country with alot of resources that still have not been monetized. I think over time the fact that the Russian stock market trades at a P/E of 5 means that over the next 10 years return from Russia will exceed returns from the US which is trading near all time highs in several valuation metrics.

For example, the huge gas monopoly Gazprom is selling for almost giveaway prices. That will not last.

I own the Russia ETF (RSX)

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