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If history is an indicator of how Russia resolves conflict with the former Soviet bloc countries, take a look at Chechnya and Georgia as recent examples since the cold war ended. Neither ones ended well.
@Ted 1. would this be used as a hedge-a-"rooskie" for the Ukrainian bonds in your global/EM bond fund(s)? 2. probably want to stay away from denominating in the sovereign--- ruble not doing so hotsy-totsy lately....("like" new record low vs. dollar)
From FPA Crescent Fund Letter to Shareholders,July 25 2014 Russia Early in the year, we began to focus on Russian companies as many global businesses seemed reasonably priced. We ultimately settled on a commodity basket that we could buy if and/or when its stock market sold off. We chose commodity companies because their dollarized revenue stream limited exposure to the ruble, which is expensive to hedge. Furthermore, these businesses account for 25% of Russia’s GDP and 50% of the country’s governmental revenue so it’s clear they are of critical importance to the state. We also believed that there was some ability to mitigate U.S. sanctions as the underlying asset is globally traded. When Russia “annexed” Crimea, we had our opportunity. The companies in our basket traded at huge discounts to their global peers and, despite low-payout ratios, had dividend yields that were much higher than their P/Es. The average P/E of the basket at purchase was less than 4x current year consensus estimates while the average current dividend yield was greater than 5%. We appreciate the risk of investing in a country with a complex, authoritarian political system and that our upside could potentially be taken by the government, but we 8 also believe that the prices at which we purchased these securities were sufficiently discounted to offer an asymmetric risk/reward that was skewed in our favor. http://www.fpafunds.com/docs/quarterly-commentaries-crescent-fund/2014-q2-crescentBD9EEAFAF16B.pdf?sfvrsn=4
I bought a bit of RSX a couple of weeks ago, really just as a value play to balance out my Asian exposure a bit. It is volatile, I'm about even from where I bought it. I'm not sure I'm comfortable putting any money into the developed world these days outside of Asia (ex-Japan). Eastern Europe seems the only serious value opportunity left.
Comments
keen observation, Old Joe, as always..
Came across this piece from WSJ that stated "MSCI Considers Excluding VTB Bank's Ruble Shares from Its Russia Index"
online.wsj.com/articles/msci-mulls-removing-vtb-banks-ruble-shares-from-russia-index-1406888093
1. would this be used as a hedge-a-"rooskie" for the Ukrainian bonds in your global/EM bond fund(s)?
2. probably want to stay away from denominating in the sovereign--- ruble not doing so hotsy-totsy lately....("like" new record low vs. dollar)
Russia
Early in the year, we began to focus on Russian companies as many global businesses seemed reasonably
priced. We ultimately settled on a commodity basket that we could buy if and/or when its stock market sold off.
We chose commodity companies because their dollarized revenue stream limited exposure to the ruble, which is
expensive to hedge. Furthermore, these businesses account for 25% of Russia’s GDP and 50% of the country’s
governmental revenue so it’s clear they are of critical importance to the state. We also believed that there was some
ability to mitigate U.S. sanctions as the underlying asset is globally traded.
When Russia “annexed” Crimea, we had our opportunity. The companies in our basket traded at huge
discounts to their global peers and, despite low-payout ratios, had dividend yields that were much higher than their
P/Es. The average P/E of the basket at purchase was less than 4x current year consensus estimates while the
average current dividend yield was greater than 5%. We appreciate the risk of investing in a country with a
complex, authoritarian political system and that our upside could potentially be taken by the government, but we 8
also believe that the prices at which we purchased these securities were sufficiently discounted to offer an
asymmetric risk/reward that was skewed in our favor.
http://www.fpafunds.com/docs/quarterly-commentaries-crescent-fund/2014-q2-crescentBD9EEAFAF16B.pdf?sfvrsn=4