Do svidaniya, Russian ETFs and Stocks

We recommend selling any remaining positions of Russian funds and companies, even though the Russian market is already down considerably this year.

The Russian market could recover handsomely and make huge profits for those who buy in now, but it may also have significantly farther down to go.
The risk we refer to is not a fundamental risk of Russian national and corporate growth and profitability. In fact, we think the major Russian companies will continue to grow rapidly.

Our concern is that Russia has made a U-turn in its posture toward private capital and toward the West in general, and the United States in particular. That U-turn could be the harbinger of adverse political or even military events that could smash the value of Russian securities held by US and other non-Russian investors.

Whether by investors dumping and running from Russia in the event of conflict, or by Russia expropriating and nationalizing foreign assets, we see material event risk in Russia.

There are other exciting markets that do not pose the geopolitical risk that Russia poses. Investors would be better served by seeking opportunity in those places.

In June of 2007, we wrote about Russian expropriation of western oil company assets on trumped up charges. We wrote about naval tensions between Canada and Russia in July of 2007, when Russia claimed territorial and oil rights to the seabed under traditional Canadian artic waters. And in July 2007, we wrote about country corruption rankings in which Russia was ranked as more corrupt than all the other countries for which there are country funds available to US investors, except for Indonesia.

Russia first threatened and has now announced an arms race with the United States. Russia has threatened Europe with interruption of gas supplies in the middle of winter. The anti-west and anti-US rhetoric in the Russian media is strong and growing. This week Russia said that European and US recognition of Kosovo after its pending secession would create an “international emergency”.

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