Russia: Too Many Risks Now


Source: Goodfon

Instrument

The VanEck Vectors Russia ETF (BATS:RSX) is a fund that offers exposure to equities from Russia, which include publicly-traded companies that are incorporated in Russia or that are incorporated outside of Russia but have at least 50% of their revenues/related assets in Russia.

Source: VanEck

Economic recovery has slowed down

According to the latest official data, in August, the Russian retail turnover slowed down to 2.7% YoY. But I am not inclined to think that acceleration ended here. It’s just that in the last month of the summer, the population increased their travel spending.

In August, the growth rate of industrial production in Russia fell to 7.2% YoY. This is slightly less than in the previous month:

But judging by the structure of this index, only the mining industry demonstrates a recovery trend:

Another indicator that I constantly monitor is the dynamics of construction in Russia. This indicator is a good marker of long-term confidence of businesses in stability. And there has been no steady growth for a year and a half:

In the last month, the business activity in the Russian manufacturing industry increased. Markit Russia Manufacturing PMI was 51.1 against 48.4 in July.

“Russian manufacturers saw the first improvement in operating conditions since April 2019 in August, amid an uptick in production and new orders. The resumption of business at firms and their clients helped boost output as domestic demand strengthened.”

To summarize, I believe that the Russian economy continues to recover, but at a slower pace than might have been expected.

Toxic atmosphere around Russia

The events of recent months have fully demonstrated the riskiness of investing in Russia.

At first, it was the factor of Belarus, which, in my opinion, has not yet exhausted itself. Then Navalny was poisoned. This led to the fact that Germany allowed the imposition of sanctions on the Nord Stream 2 gas pipeline. The situation was further complicated by the war between Armenia and Azerbaijan. The point is that Russia is an ally of Armenia. And Turkey is an ally of Azerbaijan. Various scenarios can be considered here.

Perhaps all of the above factors are not yet very strong in themselves. But all these factors coincided in time. The continuing fall in the ruble reflects well the concerns of investors.

Bottom line

So, too many risks are now associated with the Russian market. And although nothing critical has happened yet, it is difficult to make a buy recommendation. In my opinion, it is best to remain neutral for now.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source Article