The Case For Investing In Russia
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Everything appears to point against investing in Russia today: oil price, recession, sanctions, currency, the lot. But with asset prices having fallen dramatically, is there a case to be made for buying, with a long term view?
Yesterday I interviewed Joseph Dayan, Head of Markets at BCS Financial Group, an independent broker and one of the leading financial services groups involved in Russia. It’s an interview that presents a more nuanced view of Russia than one receives from the headlines.
He starts with what we know: that oil has a profound effect on Russia’s economic health. “The dependecy that Russia has on oil, in extreme situations like now, is exacerbated exponentially,” he says. “Russia’s oil and gas revenues account for over 50% of the direct income of the government. With secondary income sources – Gazprom, Rosneft and their derivatives, and what they pay to the tax man – it goes up toward 70%.Wherever oil goes today, that’s where Russia goes.”
Any investment view on Russia therefore has to take into account what will happen to oil. “Prices are very depressed and we can see huge opportunities in Russia, but it would be a value trap if the assumption that oil will bounce back falls apart.”
The BCS house view, though, is that it will recover: that oil will stay around $60 for most of the year and rise to $80 at the end of it.
The oil price is not the only problem. “Russia is going through a brutal recession, which has a lot to do with oil, but also has to do with the sanctions and geopolitics in Ukraine.” And that brings us to the second significant issue around Russia: sanctions and war.
Source : Forbes