Russia Scattershot: Views and Trading Approach From Tim - InvestingChannel

Russia Scattershot: Views and Trading Approach From Tim

I will be on CNBC’s Street Signs later today to discuss my view on Russia.  I have been getting tons of tweets and emails on whether I am buying and what I am thinking.  Here is a hodgepodge of thoughts and trading views:

Russian_flagI’ve been trading this market for 17 years including through ’98 and crisis etc and this period stands out in that there was always some geopolitical hope for Russia and the west…even in the worst of times. 

I think there is a very different tone today – on both sides of the picture.  There is less belief in the westernization of Russia by the west than ever.  Meanwhile Russians largely, reflect a fair amount of the Putin rhetoric. 

They believe the west is unfairly challenging their sovereignty and regime.  Maybe both sides have come to the right place.

The market is all that matters on some level for us and it has spoken emphatically.  The move to distressed valuations is extreme value even for Russia.  The market sliced through the Aug/Sept’10 smackdown and that is telling.  The world was on the brink.  

Russia Through Key Levels

Russia Through Key Levels

At 0.53X P/B for the ENTIRE market, this is cheap even by Russia standards.  I get that Gazprom trades cheap for reasons that we all know:  destroys capital, inefficient, no production growth, etc but even Gazprom now trades at 0.28 p/b.  This is absurd, really. 

We have seen this movie before in the Russian market and no market trades to extremes like Russia.  What is different about the selling in last 6 weeks is that the currency weakness is far worse than during other periods in the last 5 years.  Even the Georgia conflict was a mild currency reaction.  The Ruble had been sold down here far too much on a combination of Russia’s own economic malaise and new CB policy to let the currency freely float.  The transition period to this has been choppy and has been a big part of the currency move in my view.

 Western sanctions will not affect the Russian economic trajectory.  The EU cant place Iran style sanctions on Russia and we already see Germany is caught in a hard place on geopolitically. 

I started buying back YNDX today and added RSX $23 and $24 calls yesterday and some this AM.    Seeing some broader interest from the market, Sberbank so far has had a 9% intraday trough to  peak move higher.  Overall the Russian market is not going to be a rocket ship higher from here but is currently oversold.  I expect we could get a washout even next week if events deteriorate but more likely it’s a case of right now play the oversold carefully, measure your risk and expect a bounce followed by a drift. 

Don’t bet the farm here but see the opportunity.   -Tim

 

 

 

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