Russian stocks, in particular the two close end funds trading on the NYSE, are behaving like index calls on the DOW and the S&P 500.
The bottom line remains that the U.S. market will heavily influence the direction of Russian stocks in the coming year. 8000 seems to be an impenetrable barrier, as the DOW just can't hold any agins above it, and the market has made a triple top this year. That is a very bearish sign that is not seen often, and highly evocative of the DOW's
repeated attempts to break 1000 in the 60s. Those attempts ended in 73-74, and it wouldn't be until 1982 before the DOW finally broke 3 digits for good.
In the long run, it's a different story for Russian stocks. Russia's economy is bound to take off in the next few years. If you're
a patient investor, you will probably average 50%+ for the next 10-15 years on most Russian blue-chips. These are companies growing at 20-30% a year and trading at 5 times earnings. Eventually, both foreign and domestic capital will flood into Russian stocks, creating a bull market that will be similar to the Hong Kong and Japanese markets during the 70s and 80s.
For the short term, Russia is dependent on the caprices of foreign investors and the IMF. There is still a lingering non-payment
crisis in the economy. Yeltsin's erratic health is yet another concern that may induce volatility into Russian stock prices in the short term. And finally, looking abroad, Performance of other emerging markets as well as more mature markets like the U.S. will also influence prices. With earnings growing at barely 7% a year and the average mutual fund investor expecting returns of 30%+ in the next ten years, the U.S. stock market is bound for a day of reckoning, when reality(Blue chips can't grow earnings at 7% and trade at 35 times earnings) confronts these novices. The moment they find out that stocks can actually stagnate for a long period of time(as they have been since August) or worse, they will begin to switch money into bond funds, and a classic panic will occur. If you agree with this estimate, then avoid not only U.S. stocks, but any stocks for that matter(except for gold mining shares). As gray monday demonstrated, no one is immune from a global market correction. Otherwise, buy every Russian stock in sight!
Regards,
Ming |
