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Investing in Russia after the worst protests in a decade (RSX, ERUS)

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In October, Dmitry Medvedev courted the advice of top Wall Street executives from J.P. Morgan Chase, Blackstone, Citigroup and Goldman Sachs. The Russian president wanted to make Russia an international business and finance center.

Three months later, according to Blackstone's Stephen Schwarzman, "Funds are actually scared to put money here, that's the problem you must solve."

As the saying goes, though, acknowledging you have a problem is the first step. Russia has signaled its intent to join the global economy, but the path has not always been smooth.

In November, Russia took another step . The country entered into a trade treaty with nearby Georgia, which then stated it would no longer block Russia's accession to the World Trade Organization (WTO).

Russia's membership is widely expected to be approved during a WTO ministerial meeting later this week.

Last week, however, Russia took a step backward with a sharp rise in political uncertainty.

First, Medvedev's and Prime Minister Vladmir Putin's United Russia party won the December 4 elections with less than 50% of the vote.

Putin then stated government personnel changes will follow in 2012. Businesses wonder if previous business agreements are at risk.

Second, not only did the United Russia party narrowly win the elections, but it did so amid allegations of election fraud.

The largest protests Russia has seen in 10 years followed. The demonstrations reached a peak this past Saturday when upwards of 50,000 in Moscow chanted anti-government and anti-Putin slogans.

Due to this uncertainty, capital flight is expected to accelerate and exceed $85 billion in 2011, acting Russian Finance Minister Anton Siluanov estimated last week.

This week, however, has started off more calmly-the next day of planned protests not until December 24th, a day marking the end to a protest leader's 15-day jail sentence.

A "Russian Spring" is not imminent this winter. The protests signaled, though, how quickly the tide can turn.

Investing in Russia also comes with much unpredictability. Since December 5th, the Russian ruble has fallen 2.75% against the U.S. dollar.

Meanwhile, the stock market is not faring better. Market Vectors Total Return Russia ETF ( RSX , quote ) and iShares MSCI Russia Capped Index Fund ( ERUS , quote ) have both experienced large declines sinceDecember 5, falling 15.4% and 14.6%, respectively. These declines are in addition to their declines experienced after the start of the European debt crisis in August.

How Russian investments fare the rest of the month is highly uncertain - dependent on Russian political events and the nearby euro zone's sovereign debt crisis.

One thing is certain, however. Few thought Russia's path to becoming an international finance center be smooth.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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