While the world focuses on the debt problems facing Greece, Spain and the rest of the E.U., another European nation is beginning to roar back to life. With oil, gas and other commodity prices gaining steam, Russia is emerging from its doldrums.
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As the R in BRIC, the acronym created to describe the next "big" global economies, Russia is often the least talked about and least invested in. Rightfully so, the Russian economy ranks as one of the most corrupt nations. Low innovation scores, swinging commodity prices and heavy government intervention make it a less than "ideal" investing situation. However, the risk to rewards ratio may be returning to the investors favor.
A Modern Russia
The near to long-term outlook for Russia is getting brighter. The country is the world's largest, covering nearly 11% of planet's surface. That land mass contains Russia's crown jewels: commodities. The nation is the largest producer of oil and natural gas, and is rich in coal and various metals and timber. Commodity prices, which make up 60% of the Russian economy, are rebounding. As the worldwide economy continues to push forward out of crisis, so will Russia's.
The Russian economy is becoming more than a one trick pony. President Dmitry Medvedev recently stressed the need for the country to expand innovation and technology. The economy has become more diversified as the telecom and financial industries have expanded considerably. The nation has begun to take steps in order to reign in corruption, beginning with the jailing of crooked energy billionaire Mikhail Khodorovsky. Russia is taking steps to corral the many former KGB agents who run its companies in order to appeal to foreign investment.
In addition, the Russian Ruble, represented by CurrencyShares Russian Ruble Trust (NYSE:XRU), has been a tear recently which could lead to interest rate cuts. According to Forbes, the ruble is at a 14-month high and any easing in monetary policy could see the economy move in real positive direction. Analysts are predicting round 5% GDP growth in 2010.
A Russian Portfolio
The recent launch of the second Russian ETF, the SPDR S&P Russia ETF (NYSE:RBL), highlights the growing demand for access to the nations equities. The Russian SPDR will compete with the Market Vectors Russia ETF (NYSE:RSX) with $1.5 billion in assets. RBL contains roughly double the number of holdings as the Market Vectors fund at 72. The SPDR also charges slightly less in expenses. Over time the RBL will likely garner more assets and increase in trading volume as investors will want a more diverse mix of companies. However, in the mean time, investors may find that a dose of individual Russian stocks may be want their portfolio needs.
One of the best ways to play an emerging market is through its stomach. As incomes rise, so does the consumption of calories and quality of foods eaten. Wimm-Bill-Dann Foods (NYSE:WBD) is one of the largest dairy and beverage manufacturers in the nation. The company has had recently problems stemming from a milk shortage. These shortages caused an increase in raw milk prices, which have had a negative short-term effect on the group's dairy margins.
The company received a few downgrades from analysts and shares have drifted lower. However, investors taking a long-term view could see the lower share prices as a blessing. Wimm-Bill currently trades currently around $20, but has a 52-week high of $78.57.
Mobile phone use has exploded across the globe and in Russia it is no different. Vimpel-Communications (NYSE:VIP) is the leading wireless carrier for the nation. The company recently reported a 1.89% increase in average revenue per user to $10.80 and reported a quarterly profit of $283 million. Higher continued sales and a strong increasing wireless market look good for Vimpel and its competitor Mobile Telesystems (NYSE:MBT). (For related reading, take a look at Dial Up Choice Telecom Stocks.)
The Bottom Line
As the middle child of the BRIC nations, Russia is often ignored. Its rich natural resources reserves make it an ideal candidate to prosper from the growing world economy. And with its recent steps to reform its corrupt image, the risk/reward ratio is finally moving into investors favors. Investors taking the long-term approach could add either one of the two exchange traded funds or individual companies such as steel producer Mechel (NYSE:MTL) to their portfolios to profit from the Russian bear.
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