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The Arguement Against Russia

|Includes: VanEck Vectors Russia ETF (RSX)

Every quarter or so it seems that we get a rash of articles on Russia or nations in Eastern Europe or Central Asia. I'm often amazed at the authors lack of understanding about the countries they're writing about. They throw in a couple of words in Cyrillic or maybe start the title with Яussia to add mystique to an otherwise shallow article. I don't mean to stereotype and not all articles on investing in Russian equities are bad, just most of them.  I'm sure most of the authors know much more about the stock market than I, but I will not be taking their tips on Russian equities (NYSEARCA:RSX). A good percentage of these authors have never been to Russia and really don't know what it is like doing business there. Let me outline a few reasons not to do business in Russia.

  • Corruption - Anyone who has researched investing in Russia should be familiar with the Exxon/Sakhalin and Yukos/Khodorkovsky stories. If the Russian government can push around billionaires and the likes of Exxon with their investment in Sakhalin, what makes you think that your investment is safe? Authors promoting investment in Russia might have read about corruption, but are they really familiar with the extraordinary amount of 'shtraff' it costs to do business in Russia? Do they know how many layers of bureaucracy one has to pay off?
  • Lack of infrastructure - Again, another well documented point. Russia's oil/gas infrastructure is falling apart. However, it's not just the energy infrastructure falling apart, it's the entire country's infrastructure. Water, roads, you name it, they are all in need of dire investment. Authors writing about Russia might mention this, but have they taken an ice cold shower in a Moscow apartment in the dead of winter? Have they driven on the small, narrow, two lane highway from Sochi to Krasnaya Polyana (site of the next Winter Olympics)? Have they driven across Siberia on a 'highway' made of dirt?  
  • Demographics - Russia's population is in decline. According to CIA factbook the birth rate per 1000 is 11 while the deathrate is 16. Russians are literally killing themselves. Their love of alcohol is well known, but did you know Russians are the #1 consumer of heroin in the world?Or that they have an exploding infectious disease rate (HIV, TB, ect)? 

I love traveling in Russia and enjoy the Russian people, but the country is a terrible long-term investment. Readers looking to invest internationally who believe in the global recovery/inflation story would be better served focusing on Indonesia, Vietnam, and Australia.

Disclosure: No positions

Disclosure: No positions