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International Investing – Russia

July 24, 2014

The world is a big place – there are over 190 countries and 7 billion people in the world, which really boggles the mind if you sit down and think about it. In addition to being an interesting intellectual exercise, this fact can also have broad implications for your investments and your financial future. It is easy to stay focused on U.S. firms, news, and events during the day-to-day grind, but it is always important to be aware of your surroundings – especially when it comes to your investments. With that in mind, this series of articles will focus on countries and investment opportunities outside the United States that you might not usually hear about.

As always, be sure to consult a financial services professional familiar with both the potential investment and your unique financial situation before embarking on any investment program.

Update – With the rising geo-political tensions between Ukraine, Russia, and much of Western world, as well as increasingly tough sanctions, revisiting the issue of Russian economics seemed to be appropriate. In face of newer and tougher sanctions levied by the E.U. on the Russian economy, the economic repercussions of these events, while yet to be quantified, will surely be significant.

Russia

Following the fall of the Soviet Union, the Russian Federation experienced some very significant transition pains as it evolved from a centrally directed economy toward a free market model. The so-called “oligarchs” took advantage of the chaos to build their fortunes, the rule of law (especially for investors) was murky at best, and it was not the most hospitable environment for putting capital to work. That has changed. Political posturing aside, Russia is indeed open for business and, when approached with the necessary due diligence, there are certainly investment opportunities.

Opportunities for investors looking to put some of their capital to work overseas in Russia are numerous. Nearly everyone has heard of Gazprom, the Russian oil/gas giant, but there are many other firms that are just as large and profitable that are available for foreign investment. This underscores the natural resource boom that has propelled Russian economic growth in the early part of the 21st century – GDP doubled from 2000 to 2008. In addition to a booming commodity sector, there has been significant progress in both finance and telecommunications that is making them more attractive investment options.

When looking at investing in Russia, there are two primary ways to go about it – ADRs or direct purchases. An ADR is basically a certificate held by a U.S. banking institution that represents a certain number of shares in the foreign company, and is held by the U.S. institution. This helps to cut down on the administrative fees and other costs that would otherwise be incurred. For more direct exposure, you can also purchase shares directly from Russian stock exchanges if your broker offers those services to its retail investor base (you and me).

Some of the largest public firms available for investment via ADR are Gazprom and Lukoil, both of which are oil/gas conglomerates. Other firms to research are Rosneft and Sberbank – these two firms can offer additional exposure to the Russian commodity and financial sectors, respectively. Popular ETFs for investors to utilize include iShares MSCI Russia Capped Index Fund, Market Vector Russia ETF Trust, SPDR S&P Russia ETF, and Market Vectors Russia Small-Cap ETF.

As always, I have attached some links with more information

Happy Reading!

http://www.cnbc.com/id/101862323

http://www.bbc.com/news/world-europe-28400218

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