Every so often in this space I’ve suggested putting a small speculative bet on Russia. For example, a little over a year ago, May 2, 1997, I noted that the entire Russian stock market, though way up, still seemed to be valued at only about one third the value the market was placing on Coca-Cola. And up it went further, and further – an eightfold increase since 1994 – until the start of this year.

If any of you follow this market, I thought I would share the thoughts of a bright young American in Moscow who does this for a living:

Every day for the past two weeks, I’ve been telling our traders the market will continue to fall. And it has. A lot. Nearly every day. The Russian Stock Index dropped another 5% yesterday and another 4% this morning. It is now down 49% since January 1, and our account is down 47%.

I think we’re about to bottom out. The IMF left on Saturday, very quietly. My sources close to the IMF tell me that [International Monetary Fund chief] Camdessus is ready to support Russia with a multi-billion dollar bailout package if need be. There is an overwhelming sense that the IMF will step in very soon. Today, the Russian government is implementing austerity measures (albeit vague) which they claim will cut expenditures and boost revenues amounting to 50 billion rubles ($8 billion). Dubinin is fully dedicated to supporting the ruble from devaluation. He continued today by ordering all commercial banks to retain at least 20% of their portfolios in long-term government debt (OFZs). They must comply by July 1. Investors generally feel the Russian government has been doing “the right thing” to the proper degree (in contrast to Indonesia this winter), and that the IMF loves Russia.

We have not seen these levels in the RTS in 17 months. These are the days that Soros and Berezovsky and their cronies have been waiting for (indeed, in my opinion, have helped to orchestrate). If you have some extra cash to risk, now is probably as good a time as ever to average down. If I had more cash, I’d do it now.

A.T.: Does this mean you should buy 100 shares of TRF, the Templeton Russia Fund? Possibly not. It sells at a premium to net asset value, which is a handicap, and there are those pesky annual expense charges dragging you down. But better to buy it here at $26 or so than a year ago at $53. Russia is clearly risky. But it’s a good place to invest a little money you can genuinely afford to lose – and may.

Meanwhile, events move quickly. A couple of days after getting the preceding, which is to say Wednesday, he sent the following:

Wait! It’s not quite time. Today, T-bill yields jumped from 50% to 80% and higher. (The gov’t is virtually the only bidder.) This afternoon, the central bank raised interest rates from 50% to 150%. (They were raised from 30% to 50% just 10 days ago.) Ruble futures contracts for March 1999 are being traded at RR 8.7 to the dollar, a 41% premium over today’s rate of 6.16 [meaning that people are betting the ruble will be worth a lot less in the future]. Furthermore, political uncertainty about the year 2000 elections has not been fully factored into the market yet. While this may take place in a separate downward movement in the future, it probably makes sense to wait just a bit longer. The RTS Index is now down another 9% from yesterday’s close, down 54% since January 1.

While there are low prices now, and perhaps better opportunities soon, it also remains clear to me that no big money will return to Russia until the return of political stability, which will likely take place in the year 2000 or later. As before, any investments made now should be devoted for 3-5 years in order to achieve significant growth. Comparing today’s cheap, battered RTS to the pricey Dow, I’d give Russia another chance for significant long-term growth.

A.T.: So there you have it: lots of smart people, lots of big money, and … no one knows. I do know this, though: Russia itself will not disappear, and the country has awesome natural resources and an educated work force. It really may be worth more than Coca-Cola.



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