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
