With the Russian market down more than 30% this year, many of you are wondering whether we should be strategically buying shares or avoiding the region at all costs.
Well, of the four BRIC nations (Brazil, Russia, India and China), I can tell you that Russia is the one with the least transparent future.
On the surface, the country looks like a total basket case. Beneath the surface, it looks virtually the same.
So the prudent plan is to pass, right?
Wrong! With the infinite wisdom to always “buy low and sell high” in mind, as investors, we should be looking for opportunity amidst Russia’s chaos.
I began investing in the country a few years ago, both directly – through a commercial real estate purchase in Moscow, and indirectly – via a few Russian ADRs.
The real estate venture went south in a hurry, as getting a clear title proved to be an insurmountable task. However, the indirect route – buying ADRs – did bear fruit.
With Russian shares down, now’s a perfect time to repeat my earlier success. Here’s why…
Russia’s GDP is on the Rise
Make no mistake, investing directly in Russia is a fool’s venture…
The country’s economy is controlled by a small group of oligarchs with very strong ties to the Kremlin. These oligarchs made their fortunes by ripping off the general population when the country’s assets were privatized under Boris Yeltsin.
Under guidance of the Kremlin, the small group amassed vouchers given to each and every Russian through fear, fraud and intimidation. In return, those in political control received (and continue to receive) a share of the profits.
It’s a tidy deal! Except for the people, of course.
And let’s not forget the vast profits that Russia has made as the world’s top oil producer (about a million barrels more per day than Saudi Arabia).
It’s all socked away in “assets” like English Football teams, mansions in Mayfair and Aspen, and suitcases full of American dollars.
The only place the cash hasn’t reached is Russian companies.
But there’s good news on that front. A recent political shakeup suggests that opportunity is right around the corner. Let me explain…
One Man’s Ego is Another Man’s Profits
You see, Russian ruler-for-life, Vladimir Putin, decided a few weeks ago that it was time to take back the Presidential reigns from Dmitry Medvedev.
Sure, Putin was always pulling the strings in the puppet regime. But now he’s once again the face of the country.
Putin’s an egomaniac and a ruthless leader. He’s the only Russian president who’s genuinely a capitalist at heart. And he’ll do whatever it takes to enrich himself and his cadre of oligarchs.
He did it for 10 years between 1999 and 2009. And he’ll do it again!
Take a look at the chart below, which shows the progression of GDP growth under Putin’s previous rule.
That’s right… it more than doubled! And it’s back on track to expand again after the recent contraction.
For investors, this is fantastic news.
With the market down some 30% this year, I recommend pushing a few chips in on the Templeton Russia Fund (NYSE: TRF).
It’s a closed-end fund that currently trades at an 8% discount to net asset value.
Will the country move forward under Putin and enact some type of reform to make Russia a viable long-term investment? That remains to be seen.
But with his hatred of labels like “emerging market” or “second class,” don’t expect him to leave a legacy of declining economic prosperity in Russia.
If Putin is able to repeat the performance of his past tenure, and puts forth policy that allows Russia to grow, this investment could easily double in the next five years.
Whether the Russian populace at large will benefit is another question altogether.
Ahead of the tape,