There has been a lot of talk recently of Russia, and in particular Putin, attempting to influence the upcoming U.S. elections. But what I believe would be a game changer is not the supposed cyber-attacks by the Russia intelligence services and other entities working at their behest, but if, let’s say a month or so from now, the Russian troops that are massing on the borders of Ukraine were to invade. In my opinion, that act would do tremendous damage to the equity markets. Europe would find itself spiraling into a recession, the U.S. markets would follow suit, and oil would spike.
You don’t think this could happen? The Russian economy has been in a severe contraction for the last six quarters. Although the latest GDP numbers may indicate stabilization, they are still negative. Recently one of the world’s worst dictators, President Islam Kerimov of Uzbekistan, died leaving a power vacuum which no doubt Putin wishes to exploit for his benefit.
A little known fact is that the country is a tremendous source of cheap labor for Russia, and knowing that China has steadily tried to push Russia out of Central Asia, Putin will have a chance to prevent that. Russian oil and gas companies like Lukoil and Gazprom operate in that country. So, in Putin’s eyes, the stars are lining up for him. All he needs to do to expand his direct influence is to walk into Ukraine under some pretense, though he probably doesn’t need one. And who is going to stop him?
Currently Russian equities are having a nice run up with the MICEX up over 16% YTD. Russian focused ETFs are producing good gains as well this year. So, is there money to be made in Russian equities even at this late stage? I would venture to say yes, with Gazprom (OGZD) Lukoil (LKOD), and Rosneft (ROSN) leading the way. Ultimately who would be the big winner if Mr. Putin does decide to waltz into Ukraine? Not Europe, certainly not the U.S., but the Russian economy will benefit from higher oil prices.
I thought that Mr. Putin was being marginalized by the rest of the world. Now that doesn’t seem to be the case. In fact, he holds all the cards.