Russia: Reward Outstrips the Risk

Position: Long Russia via the etf RSX

Everyone's aware of the geopolitical risk associated with Russia.  Below are negative and positive factors for framing this debate; we believe reward outstrips the risk. As always, price rules.

Negatives:

  • Russia has a massive amount of debt to refinance this year (~$100 Billion)
  • Siberian Services (an oil drilling company) defaulted on $100 Million of debt today. This is the second case of default in Russia this year (Finance Leasing Co.)
  • Volatility of Medvedev and Putin Government remains a constant
  • Inflation at 14% in March Y/Y
    • Volatility in the Ruble (despite intermediate stabilization) is always a credible threat. Should inflation extend itself, it will put further pressure on the price of imports


Positives:

  • Russian stock market (RTSI) is up +36% since March 1st or +17.2% YTD
  • Russia benefits from Commodity Reflation
    • Economy is levered to basic materials and energy commodities
    • In Q408 natural gas and oil accounted for 46% of total export revenues.  (Down from over 50% in 1H08)
    • Credit Suisse upgraded Russian stocks today, citing stabilization of oil prices
  • Proximity to THE client, China
    • Russia has what China needs-Oil.  Russia did a major oil deal with China in mid- February '08. In return for 300,000 barrels of crude a day for 20 years, China loaned $15 Billion to Russia's Rosneft (oil firm) and $10 Billion to Transneft (oil pipeline co.). The loans will help capitalize their balance sheets and promote expansion
  • Increased Ruble stabilization versus its trading band
  • Early cycle in mark-to-market prices to expedite its purge
  • Putin issued a $90 Billion stimulus package yesterday
  • International reserves up last week $2.7 Billion to $388 Billion, third largest in the world


We're currently long Russia via RSX, which we bought for a second time this year on 3/27.

Matthew Hedrick
Analyst

Russia: Reward Outstrips the Risk - ruskie


SECTOR SPOTLIGHT | Live Q&A with Healthcare Analyst Tom Tobin Today at 2:30PM ET

Join us for this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more