Russia is following Japan's footstep

Russia is an emerging economy, part of the socalled BRICS countries, and is very rich in natural resources, especially oil and natural gas. But due to its political and economic systems, investing in Russia is not really easy and can be volatile. One should never chase high when it is hot but if you catch it up at the beginning of an uptrend, you may make a lot of money as well. Right now, maybe it is the time to consider to put some money in Russia's stocks.

 

 



As you can see, Russia bounced back strongly from its 2009 bottom and peaked in early 2011. Since then, it has got a haircut by nearly 50%. Russia's stocks are substantially lagging behind the performance of S&P 500 as shown in the lower panel of the chart. At this level, Russia stocks are very cheap and have a great potential to catch up. Now there may be a strong catalyst. Russia is likely following what Japan is doing to overly stimulate their economy. Why so? Because it is well known that President Putin is not happy with the current economic status in his country and he wants to push it forward. But until now his hands are bounded because the head of the Central Bank of Russia has been quite independent and has not complied with Mr. Putin's call to lower interest rates due to concerns of inflation. Now Putin has changed the CBR head and ask his current economic advisor and his political ally, Elvira Nabiullina, to take over CBR's crown. In other words, it is very likely that Russia will lower the interest rate, maybe more than once and may even start to print money by buying government bonds. Similar to what happens to Japan, this kind of actions will likely trigger a bull run for the Russia's stock markets.

 

If you want to take this idea, RXS (for big companies stocks) and RXSJ (for more diversified and smaller companies) are the two ETFs for Russia. As I said it could be volatile and please watch for your stop loss if you are playing with this speculation.