Trump To Lift Russian Sanctions. Time To Buy Russia???

Posted by on January 23, 2017 12:28 pm
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It is widely anticipated that President Trump will soon lift sanctions on Russia. I cannot begin to tell you how idiotic, even childish, these Obama sanctions against Russia were to begin with. Let’s save that for another time.

The question is, should President Trump lift sanctions, is it time to BUY Russia and Ruble?

It is not an easy answer. As the chart above suggests, RSX (Russian ETF) has bottomed exactly a year ago and is now up close to 100%. At that time we were incredibly bullish on the Russian market due to its give away valuation levels.

Here is what we said at that time – January 2016. . Is It Time To Buy Russia (RSX)?

While the US stock market is massively overpriced, Russian market is being sold at give away valuations. Here is another way to look at it, the capitalization of the entire Russian Stock Market is equal to that of Apple (AAPL). Both are at around $540 Billion.

I continue to maintain that Russia is the most undervalued market in the world. Let’s take a closer look at their 3 year chart – represented by (RSX)

Russia - RSX - InvestWithAlex

A number of things become immediately apparent.

  1. RSX remains in a clear long-term technical downtrend. There is nothing to suggest that the market has shifted gears into a bull leg.
  2. RSX might be putting in an important double bottom. And if this double bottom holds, RSX might soon start its Bull Market.
  3. The RTS collapsed 75% during the financial crisis and the bear market of 2007-09. Our mathematical and timing work indicates that the US will have a severe bear market between 2015-2017. If so, Russian market is likely to continue with its downtrend. 

Which interpretation is correct? 

It is too soon to tell. Yet, if you are long-term investor (3-10 years) I believe Russia represents an amazing buying opportunity. On valuation basis alone. It can’t go to zero and sooner or later this market will recover.  And considering today’s valuation levels any such recovery will be spectacular. Most likely at 10X or more.

Further and if I may, I would like to suggest a possible trigger point for the Russian bull market to start. Last week I wrote Endgame In Sight: Putin Declares War On Saudi Arabia. Will The US Respond?

If Mr.Putin is able to bring “The House of Saud” down, plunging Saudi Arabia into the chaos it deserves, the price of oil should immediately recover. Stabilizing the Russian Economy and giving RSX the pretext it needs to start a multi-year rally.

For now, it might be a little too early to invest in the Russian market. However, this investment opportunity should definitely be on your radar screen. Even in your portfolio if you are a long-term investor.

Fun fact: the Russian market is still up 2,600% from its 1998 crisis bottom.

It is now becoming evident that January 2016 represented an important double bottom for the Russian market. The index has clearly broken out of its downtrend and the rally is likely to continue.

One thing is certain. Russian market remains incredibly cheap here. Still the best value in the world at 1 Trillion valuation. 

It is quite possible that the Russian market has already priced in Trump presidency and the end of sanctions. A major pull back here is not out of the question. Especially, if we consider bubble level valuations in the US.

Finally, and as was suggested before, an allocation to Russia should be a part of your portfolio. Given today’s valuations, it is bound to make you money given enough time.