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  • The Russian Economy – More Than a One Trick Bear

    2010 - 03.26

    Of the BRIC countries Russia is perhaps the least talked about and least invested in, even though it is in an acronym created to describe the next ‘big’ global economies. At the moment the world’s focus is on the debt problems facing Greece, Spain and the rest of the EU. But with their oil, gas and other commodity prices gaining momentum Russia is finally emerging as a major player.

    This doesn’t mean that Russia’s economy still isn’t ranked 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. Despite this the risk to rewards ratio may be returning to the investors favour.

    Russia covers nearly 11% of the planet’s surface making it the world’s largest and within it Russia keeps its crown jewels: commodities. The nation is rich in coal as well as various metals and timber and is the largest producer of oil and natural gas. The Russian economy is made up by 60% in commodity prices, which have been rebounding since the world’s economy pushes forward out of financial crisis.

    Recently the President Dmitry Medvedev stressed the need for the country to expand its technology and innovation. As the telecom and financial industries have expanded considerably the economy has become more diversified. In addition steps have been taken by the government to reign in corruption, beginning with the imprisonment of energy billionaire Mikhail Khodorovsky. In order to appeal for foreign investors Russia is also moving to round up many former KGB agents who run its companies.

    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.

    Russia is an ideal candidate to prosper from the growing world economy due to its rich natural resource reserves. But as a typical middle child of the BRIC nations Russia tends to be ignored. However with its recent steps to stem corruption the risk/reward ratio is finally moving into the investors favour. Investors looking to take the long term approach with Russian have one of two options. They could either add one of the two exchange traded funds to their investment portfolios or invest in individual companies, such as steel producer Mechel (NYSE:MTL).

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

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