Why are Russian stocks so cheap?

[EliG]

Couldn't happen to a nicer guy.

 

 

http://i.imgur.com/P9hLWEi.jpg

[AtlCDore]

The more I see what's happening in Russia, the more I think there is a great opportunity to be had.  I know things are scary with Putin and Co.  Plus the Ruble is in free-fall but Greece blew up 2+ years ago and a lot of money was made in making investments there.  Going back to mid-90's (and I have to look at my notes in my office), Mexico's Peso blew up but yet those who bought the Mexican stock market made multiples. 

 

Russia is trading in low single digit P/E levels.  At some point doesn't the reward outweigh the risk and have we reached that point in Russia?

 

Is anyone looking at Russia?

[Lance]

AtlCDore - I'm long CTCM, LUKOY, OGZPY and SBRCY.  Other than CTCM, I'm buying as they go lower - I added to LUKOY today.  At some point I will buy ERUS or RSX, but not sure when. 

 

Thanks,

Lance

[AtlCDore]

Lance,

 

I went the easy way out and bought some RSX yesterday and some more today.  All we need now is Michelle Caruso Cabrera to be reporting from the street of Moscow to signal a bottom. 

 

AtlCDore

[VersaillesinNY]

A new interesting essay by George Soros.

 

A New Policy to Rescue Ukraine - January 7, 2015

 

http://www.nybooks.com/articles/archives/2015/feb/05/new-policy-rescue-ukraine/?insrc=hpss

[phil_Buffett]

http://www.bloombergview.com/articles/2015-04-01/russia-s-recovery-won-t-have-to-be-oil-driven

[Liberty]

http://www.bloomberg.com/news/articles/2015-05-11/putin-s-34-billion-siberian-hoard-hunted-by-cash-starved-allies

[Jurgis]

http://www.bloomberg.com/news/articles/2015-05-11/putin-s-34-billion-siberian-hoard-hunted-by-cash-starved-allies

 

In Soviet Russia oil invests in you!  8)

[VersaillesinNY]

Find attached a contrarian view on investing in Russia from Kopernik Global investors (1.5 Billion AUM).

 

Russia - It’s not me, it’s you

 

“Why would you have any money invested in Russian stocks?”

“Why are you so bullish on Russia?”

“Don’t you think Russia is risky?”

“Is Russia un-investable?”

“Are the risks there too murky and complex to even assess?”

“Are there risks there that are unknowable?”

Kopernik_Perspective_-_Russia_FINAL.pdf

[Jurgis]

If people want to invest in a country that is run by a fascist dictator, is seriously considering annexation of big swaths of Europe and possibly nuclear war, that's their choice.

 

Perhaps they should instead think about how to strengthen NATO and EU. Cause at some point it might be too late.

[John Hjorth]

I'm bumping this topic up, in case there is just some traction to the SBRCY topic in the investment ideas forum going forward. [Which there right now not seems to be.]

 

Especially for Lance [, if you read this]: Are you still invested in this space?

[TwoCitiesCapital]

If people want to invest in a country that is run by a fascist dictator, is seriously considering annexation of big swaths of Europe and possibly nuclear war, that's their choice.

 

Perhaps they should instead think about how to strengthen NATO and EU. Cause at some point it might be too late.

 

Not all of the businesses there are run by fascist dictators nor does Putin have a sphere of influence in every company. Furher, as bad as I think Putin is, has he really done anything that America hasn't?

 

He annexed Crimea. The U.S. invaded the Middle East, supposedly, for weapons of mass destruction that were never found and destabilized an entire region in the name of "freedom" while killing more innocent civilians in their invasions and the ensuing wars than those evil dictators ever did. Further, we do unsanctioned air strikes in sovereign airspace, often times without the permission of the country we're operating in, which would be seen as a declaration of war if any other nation tried it.

 

He meddled in the U.S. elections. The U.S. has meddled in dozens of elections globally and forcibly removes dictators it doesn't like, at will, while supporting other families/governments that are just as terrible but give us oil. Further, tapes revealed that the U.S. was meddling in the Ukranian election that resulted in the pro-NATO candidate winning which prompted Russia to act since "enemies" were now on it's border.

 

I don't support Putin, but it would be hypocritical of me to say I won't invest in Russia b/c of Putin if I'm willing to invest in the U.S. despite it's "foreign policy".

[cameronfen]

If people want to invest in a country that is run by a fascist dictator, is seriously considering annexation of big swaths of Europe and possibly nuclear war, that's their choice.

 

Perhaps they should instead think about how to strengthen NATO and EU. Cause at some point it might be too late.

 

Not all of the businesses there are run by fascist dictators nor does Putin have a sphere of influence in every company. Furher, as bad as I think Putin is, has he really done anything that America hasn't?

 

He annexed Crimea. The U.S. invaded the Middle East, supposedly, for weapons of mass destruction that were never found and destabilized an entire region in the name of "freedom" while killing more innocent civilians in their invasions and the ensuing wars than those evil dictators ever did. Further, we do unsanctioned air strikes in sovereign airspace, often times without the permission of the country we're operating in, which would be seen as a declaration of war if any other nation tried it.

 

He meddled in the U.S. elections. The U.S. has meddled in dozens of elections globally and forcibly removes dictators it doesn't like, at will, while supporting other families/governments that are just as terrible but give us oil. Further, tapes revealed that the U.S. was meddling in the Ukranian election that resulted in the pro-NATO candidate winning which prompted Russia to act since "enemies" were now on it's border.

 

I don't support Putin, but it would be hypocritical of me to say I won't invest in Russia b/c of Putin if I'm willing to invest in the U.S. despite it's "foreign policy".

 

That's a false equivalence.  We invaded Afiganistan because of 9/11.  The US was attacked, they were harboring the terrorists.  We attacked Iraq for similar rationale.  We thought they had WMDs, we were worried that they would help perpetuate another 9/11 on the US.  We were wrong on all those fronts, however we have withdrawn most of our troops and allowed self autonomy.  While maybe Bush wanted the oil, you basically can't deny that to some extent he wanted to make the world a safer place.  Conversely Russia attacked Crimea because they wanted to increase there sphere of influence and threaten a country moving closer to the West and expand territory.  I concede that the US has done similar things in the past (Vietnam War mainly), but Russia is Machivillian to a degree the US is not.  When we engaged in these wars we ultimately allowed some sort of self autonomy when we left whether we failed or succeeded (Korea) and didn't attempt to colonize these areas.  The US does practice some realpolitik, but also has a reputation of supporting democracies like during the Arab Spring etc.  Russia is neither a democracy and consistently (unlike the US which only sometimes) supports dictators.  The US is neutral to supporting pro-democratic rebels in Syria, Putin supports Assad and his use of chemical weapons. 

 

Putin also basically controls the entire country.  He assassinates people on foreign soil and at home who are a threat to him (even his own nationals).  The US doesn't do that.  I think the last assassination I have heard the US perform is Osama Bin Ladin and there is no way that is not justified.  Perhaps you can call drone strikes assassinations, but these are typically done in war zones.  Maybe the US assassinates people privately, but Putin certainly does more as we hear about public assassination attempts at least once per year.  Additionally journalists and opposition party protesters have been jailed and killed for no legal reason. 

 

Furthermore, there is evidence that Putin bombed his own people to catalyze his rise to power.  Sounds like a conspiracy theory and the truth is currently not known, but even a site with as much to lose (being affiliated with the Republican Party) as the National Review has lent credence to this theory: https://www.nationalreview.com/2017/02/russia-apartment-bombings-september-1999-vladimir-putin-fsb-cia/  Major newspapers run this as a fair and not out of right field analysis of how Putin came to power.  The idea that the US and Russia are equally culpable is a false equivalence. 

 

Whether you agree with it or not, the US spends lots of money on the military and nuclear umbrella so that we can defend our allies from Europe to Japan.  If you consider that being taking advantage of, you basically are conceding that we are helping our allies at our own expense.  One big reason there has not been a global war since the 1990s is because of our enormous military which we use to discourage extremely aggressive and predatory action (even if sometimes it still happens and we still practice it).  Basically yeah sometimes we are Machiavellian in trying to get what we want in foreign policy, but we also spend a lot of money and effort doing good in the world which is more than you can say for Russia. 

 

 

[Gregmal]

I think the bigger thing is simply that in many countries you have laws and/or various systems of checks and balances that protect shareholder rights. In countries, and with companies where there isn't confidence in the system, what is your recourse as a shareholder? Good luck with a poor corporate governance campaign, proxy fight, court case in Russia...

[John Hjorth]

gregmal & cameronfen,

 

What's your basis for your posts?

[cameronfen]

gregmail & cameronfen,

 

What's your basis for your posts?

 

I did quote the national review, but its easy to find newspapers where bush was saying he's liberating Iraqi's right  before the iraq war and during.  It's easy to find trump (like see a cnn article) saying the other countries are taking advantage of our miltary which is just a more cynical way of saying that aspect of our foriegn policy is doing the rest of the world a favor.  Killing of journalist and oposition parties just ask Bill Browder also the recent attempted assasination in the UK.  Putin dictatorship (duh I hope you dont need a source for that).  Gregmail is right though the main issue with stocks though is the lack of institutions and corparate governence (again ask bill browder or follow amy company owned by Putin's govt or cronies).  Do you think its a coincidencw that putin and all his friends become billionaires after he camr in power? 

[TwoCitiesCapital]

If people want to invest in a country that is run by a fascist dictator, is seriously considering annexation of big swaths of Europe and possibly nuclear war, that's their choice.

 

Perhaps they should instead think about how to strengthen NATO and EU. Cause at some point it might be too late.

 

Not all of the businesses there are run by fascist dictators nor does Putin have a sphere of influence in every company. Furher, as bad as I think Putin is, has he really done anything that America hasn't?

 

He annexed Crimea. The U.S. invaded the Middle East, supposedly, for weapons of mass destruction that were never found and destabilized an entire region in the name of "freedom" while killing more innocent civilians in their invasions and the ensuing wars than those evil dictators ever did. Further, we do unsanctioned air strikes in sovereign airspace, often times without the permission of the country we're operating in, which would be seen as a declaration of war if any other nation tried it.

 

He meddled in the U.S. elections. The U.S. has meddled in dozens of elections globally and forcibly removes dictators it doesn't like, at will, while supporting other families/governments that are just as terrible but give us oil. Further, tapes revealed that the U.S. was meddling in the Ukranian election that resulted in the pro-NATO candidate winning which prompted Russia to act since "enemies" were now on it's border.

 

I don't support Putin, but it would be hypocritical of me to say I won't invest in Russia b/c of Putin if I'm willing to invest in the U.S. despite it's "foreign policy".

 

That's a false equivalence. 

 

Not to turn this into a political debate, so I'll only respond once to check each point and leave it there.

 

 

We invaded Afiganistan because of 9/11.  The US was attacked, they were harboring the terrorists.We attacked Iraq for similar rationale.  We thought they had WMDs, we were worried that they would help perpetuate another 9/11 on the US.  We were wrong on all those fronts, however we have withdrawn most of our troops and allowed self autonomy. While maybe Bush wanted the oil, you basically can't deny that to some extent he wanted to make the world a safer place.

 

The stated reason for war in Iraq: "To remove a regime that developed and used weapons of mass destruction, that harbored and supported terrorists, committed outrageous human rights abuses, and defied the just demands of the United Nations and the world"

 

It has since been shown the "evidence" of WMDs was flimsy - supported by the fact that we never found them despite having troops on the ground for years.

 

Did Iraq harbor and support terrorists? Probably. So have many allies of the U.S. in the middle east (Saudi Arabia for instance). What makes Iraq any different?

 

As far as human rights abuses, it's estimated that there were 155,923 – 174,355 CIVILIAN casualties from the Iraq conflict. Obvioulsy, this doesn't include deaths of soldiers on either side. It also doesn't include the figures from the power vacuum we left in our wake that has led to strengthening influence of groups like ISIS are a direct result from the destabilization of the area.

 

Was Saddam bad? Absolutely. Was it worth have 175k+ civilian casualties, hundreds of billions of dollars in wasted resources in an endless war, and destabilizing the entire region to get him out of office? I would probably argue that it was not. Is the world safer? I think the evidence has suggested otherwise.

 

Conversely Russia attacked Crimea because they wanted to increase there sphere of influence and threaten a country moving closer to the West and expand territory.  I concede that the US has done similar things in the past (Vietnam War mainly), but Russia is Machivillian to a degree the US is not.  When we engaged in these wars we ultimately allowed some sort of self autonomy when we left whether we failed or succeeded (Korea) and didn't attempt to colonize these areas.

 

Russia attacked Crimea to secure an important military asset - Russia's only warm-water naval base. It invaded Ukraine in response to U.S. representatives meddling in the Ukranian election in an attempt to tip the scales in favor of a pro-NATO candidate - likely in a bid to further support the construction of the . The pro-NATO candidate won and the likelihood of a NATO/U.S. controlled missile "defense" system and NATO deployments being installed in a neighboring country was a clear and present danger to Russia. So they did what they could - invaded Ukraine.

 

It does not appear to me that Putin is acting out some colonial wet dream. It seems to me he is responding to provocation. How would we feel if China and/or Russia started deploying armed soldiers and missiles and defense systems in Canada/Mexico? Something like this happened once - The Cuban Missile crisis. How come we have an entire section in history dedicated to Russia stockpiling missiles in Cuba, and the war that almost erupted because of it, but have no appreciation for the U.S. doing something similar in Ukraine and pretend its simply because Russia is evil that they invaded...

 

The US does practice some realpolitik, but also has a reputation of supporting democracies like during the Arab Spring etc.  Russia is neither a democracy and consistently (unlike the US which only sometimes) supports dictators. The US is neutral to supporting pro-democratic rebels in Syria, Putin supports Assad and his use of chemical weapons.

 

The U.S. supports whatever forms of government that best suits it at the time. For instance, we are fine with the government in Saudi Arabia at the moment. I'd almost argue the main reason we prefer democracies in other countries is because it makes it easier to influence the ensuing elections to our needs - but maybe that's just me being overly cynical.

 

As for chemical weapons, it's hard for me to say whether or not I believe Assad or the rebels set them off. Keep in mind that several of the rebel groups we've armed, trained, and fought alongside in Syria are sympathetic to ISIS and are the same people/groups we're fighting and killing in other countries like Iraq. Both the rebels and Assad have the capacity to harm civilians for gain, but only one of them stood to gain from the U.S. involvement following the chemical attacks -- the rebels. Who actually used the weapons? I can't say, but I don't think its as simple as blaming Assad because he's a terrible person or because that's what the U.S. government told us.

 

Putin also basically controls the entire country.  He assassinates people on foreign soil and at home who are a threat to him. The US doesn't do that.

 

The U.S. DOES do that. We've assassinated and removed WORLD LEADERS who were a threat to us - see the war in Iraq discussion above. We've even gone so far to assassinate U.S. citizens suspected of terrorist ties without a trial - in direct conflict with the constitution the President is sworn to uphold. Maybe it's not as bad as arresting and killing domestic political opponents yet, but we are not innocent of fighting wars over the a person we don't like sitting in a seat of power or killing U.S. citizens that were deemed to be a potential threats.

 

I think the last assassination I have heard the US perform is Osama Bin Ladin and there is no way that is not justified.  Perhaps you can call drone strikes assassinations, but these are typically done in war zones.  Maybe the US assassinates people privately, but Putin certainly does more as we hear about public assassination attempts at least once per year.  Additionally journalists and opposition party protesters have been jailed and killed for no legal reason. 

 

I addressed the assassinations above, but keep in mind that we invaded a sovereign nations airspace to do it. Not a big deal? Let's see if we'd allow Pakistan to deploy military helicopters filled with elite soldiers in the U.S. under the cover of night or if we'd feel that was an act of war.

 

As for journalists, they are not currently be actively killed by the U.S. gov't, but we do have a President who has labeled the media the "enemy" and has much to say about the "fake news."

 

The idea that the US and Russia are equally culpable is a false equivalence.

 

They don't have to be the equally culpable to be similar enough to draw comparison. If people have moral reasons for not investing in Russia, I'm surprised they're able to overlook them to invest in the U.S. who similarly meddles in global elections, invades sovereign countries, supports evil dictators, and assassinates political threats.

 

We may not be equally as bad, but we do a lot of the same terrible things that people cite as reasons for hating Russia while holding us up to be the good guys. 

 

Whether you agree with it or not, the US spends lots of money on the military and nuclear umbrella so that we can defend our allies from Europe to Japan.  If you consider that being taking advantage of, you basically are conceding that we are helping our allies at our own expense. 

 

I'll also concede it gives us a huge military advantage over most, if not all, other nations and may not be done for altruistic means. What about the leverage the militaristic advantage gives us?

 

One big reason there has not been a global war since the 1990s is because of our enormous military which we use to discourage extremely aggressive and predatory action (even if sometimes it still happens and we still practice it).  Basically yeah sometimes we are Machiavellian in trying to get what we want in foreign policy, but we also spend a lot of money and effort doing good in the world which is more than you can say for Russia.

 

I'd actually argue that globalization is likely the reason we've not had a global war. Historically, people don't fight with major trading partners. Globalization has allowed for countries to have unprecedented economic impact on each other which, IMO, is more likely to prevent wars.

 

Anyways, I'm happy that people will overlook their morals to invest in the U.S. instead of Russia. This faux moralism is what is allowing me to profit from the opportunity in relative values between the two.

 

 

I think the bigger thing is simply that in many countries you have laws and/or various systems of checks and balances that protect shareholder rights. In countries, and with companies where there isn't confidence in the system, what is your recourse as a shareholder? Good luck with a poor corporate governance campaign, proxy fight, court case in Russia...

 

I'll agree with this to some extent. Russia will never be able to get the multiples other European nations get until it cleans up it's governance, but corporate governance in the U.S. is far from perfect. See the FNMA thread in General Discussion for a refresher in the U.S. being able to steal tens of billions with impunity while courts simply say "yes, the gov't can do what it wants". Hardly the "checks and balances" that "protect shareholders rights" that people seem to believe exist here.

[Jurgis]

It's not surprising that for some people dollar signs is the only moral value and they can rationalize investment in anything however corrupt and despotic it is.

 

Also not gonna be very surprising if Putin screws them and then they gonna expect to get their money back through lawsuits and sanctions of the countries which they accused to be on par with Putin's Russia.

[Gregmal]

Corporate governance is responsible for protecting the interests of shareholders. When that fails the courts are there to do so. In some countries, not only does an investor not have the assurances of either, they have the expectation of neither. This makes it a "no go" zone, for me at least. Similar thing as walking into a US investment with concentrated management ownership or dual class structure. You better be familiar with the terrain otherwise you are in for a rude awakening.

[John Hjorth]

Greg, Jurgis & cameronfen,

 

Have you dived into the information on the websites of any of those Russian stocks recently? I sure understand your position [by principle] regard "lack of respect to capital" with regard to Russia, ref. the phrasing used by i.e. Mr. Flatt, Brookfield Asset Management.

[cameronfen]

Greg, Jurgis & cameronfen,

 

Have you dived into the information on the websites of any of those Russian stocks recently? I sure understand your position [by principle] regard "lack of respect to capital" with regard to Russia, ref. the phrasing used by i.e. Mr. Flatt, Brookfield Asset Management.

 

Yeah I have to some extent but don't read Russian.  I would probably buy mail.ru in Russia because even though its sort of a corporate governance nightmare, it's such a good business and has some sort of stabilizing European influence compared to many of the other big Russian firms as well and so I think it will do well.  But I can't by mail.ru so yeah. 

[wachtwoord]

It's not surprising that for some people dollar signs is the only moral value and they can rationalize investment in anything however corrupt and despotic it is.

 

Also not gonna be very surprising if Putin screws them and then they gonna expect to get their money back through lawsuits and sanctions of the countries which they accused to be on par with Putin's Russia.

 

A cheap, naive and childish response to Twocitiescapital's well thought out and logically consistent writing. He does not deserve the thinly veiled ad hominem.

 

Thanks Twocitiescapital, I wish the western news channels were able to report with anything close to this level of impartiality.

[rb]

I'm basically with Gregmal here. I don't invest in Russia not because I don't like Putin (and I really don't like Putin) but because I don't know that I'm gonna get my money back. It's not just the political stuff. I also have zero faith in managements also. So Russia is an absolute no go for me.

 

Now I'm sure that there are some (a few?) good honest companies in Russia and someone who really dedicates himself to it will find some gems. But from my point of view life is short and I can think of much better ways to spend it than to find the few honest companies in Russia. There are a shitload of other public companies in the world to choose from so it's not like I'm constricted.

[John Hjorth]

Based on the post by TwoCitiesCapital, last part, I did go back and reread the Lukoil topic here on CoBF, and I found a post by Ericopoly, similar to what TwoCitiesCapital wrote in the last part of his post:

 

I meant that the Kleptocracy discount is priced into Fannie/Freddie.  Hinges on the success of the lawsuits in a Government court.  We have the government debating permanent seizure of common stock property right here in the USA!

 

So my comment is that the Democrats give you the best of Putin -- they provide you with the opportunity to speculate on the seizure of your common stock without supporting Putin's regime.

 

Lukoil is priced where it is for those two reasons (the other reason being the oil crash).  So my joke is that if you pair up a US oil stock with a FNMA common stock, you have a LUKOY.  You have depressed oil trade paired with nationalization discount.  And underneath, you have a cash flow monster in Fannie Mae.

 

To me, really entertaining [ : - D ], and also demonstrates how important it is to try to stay openminded and sceptical about what's going on in each of our own local spheres.

 

Thank you to all for input so far. There is a lot to think about and to study.

[Gregmal]

Greg, Jurgis & cameronfen,

 

Have you dived into the information on the websites of any of those Russian stocks recently? I sure understand your position [by principle] regard "lack of respect to capital" with regard to Russia, ref. the phrasing used by i.e. Mr. Flatt, Brookfield Asset Management.

 

I've looked at a few but admittedly spend less and less time there. Like rb said, there's just too many other opportunities out there and it just doesn't make a while lot of sense to me to spend time somewhere that has an incredibly high hurdle. I've liked Yandex, and looked at OGZPY before, but at the end of the day I try to be impartial to names and businesses I like and instead break things down to a number. Total expected return. And if I can find the same number elsewhere, with less risk or headache, that's were I go.

 

FWIW I remember Jim Grant pitching OGZPY several years ago at Sohn or one of those conferences. The thesis was that oil was bottoming and it traded at 4x earnings. Well the thesis was right and you'd think three years later with the massive oil recovery, not to mention when something is trading at 4x earnings you'd think after three years of earnings it would be at least 50% higher, nevertheless its substantially down and in the toilet. I have not followed super closely so if there was a large capital return I stand corrected but as of now the shares are at $4.50. It was at $7 when he pitched it. Numbers just don't add up and that's why it's just too much hassle to do Russia right now. Even the good ideas can be a disaster. Instead I bought BP at 33 without even thinking and have had an effortless return.