Fringe Forum: Is There A Case For Investing In Russian Assets Right Now?

(Disclaimer: This is not a solicitation to buy or sell securities. I own a small weighting in RSX that I am adding to slowly, in small fractions. Investing in Russia is likely the riskiest thing you can do right now and carries a profound chance of 100% loss of your investment or inability to liquidate/transact. This is a ‘special situation’ that carries immense risk. This post is for discussion purposes only and is, in no way, financial advice.)

There’s no doubt that the events over the last couple of weeks in Ukraine have been horrifying. From a humanitarian and geopolitical standpoint, the damage has been immense and will continue to be for years, regardless of how the conflict ends.

Moving away from the conflict itself and looking at the world’s response to Russia’s invasion, we have experienced some of the most significant global economic shockwaves in history. It feels as though the entire world, probably with the exception of China, has committed to no longer doing business with Russia.

Economic sanctions have crippled the country’s stock market and its currency - something I talked about at length on my most recent podcast, published this morning.

Russian stocks plunge and rouble hits record low after Ukraine invasion |  Financial Times

If many of you are like me, the oversized moves in stocks tied to Russia may have caught your eye, strictly from a “morbidly curious” standpoint. Will Russian ADRs and stocks still be allowed to be traded in the US? Will these sanctions and bans that have already been instituted last forever? Will Russia separate itself from the west economically and try to start anew with China as a partner?

These are all questions I’ve been asking myself over the last week.

Russia Keeps Stock Market Closed in Longest Pause Since 1998 - Bloomberg

Putting aside my thoughts on the humanitarian travesty in Ukraine, the contrarian investor in me can’t help but acknowledge that Russia owns real strategic assets tied to commodities and, on the selloff, somebody - likely China - is going to get a sweet deal on commodity assets that will continue to provide them not just economic benefit, but productivity benefits, for many decades to come.

Russian Ruble In a Freefall, Plunges to Record Low Against the Dollar -  Mish Talk - Global Economic Trend Analysis

So far, I have only disclosed to my readers that I am purchasing small slivers of the RSX in completely negligible amounts, consistently on a daily basis, while I wait to see how the picture develops. I’m expecting to potentially lose 100% of the investment, but am also realizing that if things steady between Russia and Ukraine, it will likely already be too late to buy the dip. You legitimately have to buy into the fear, on days like today when Lavrov is talking about nuclear war, when the hope of resolution looks grim, in order to reap the benefits of (hopefully) the conflict de-escalating.

Incredible discussions like the below one with Luke Gromen, from earlier this week, have also opened up my eyes to exactly how Russia may try to leverage its commodity production to reestablish itself economically, but outside the world of western economics. I would recommend everybody listening to this one hour long podcast for incredible insight as to how Russia may weaponize its oil and its gold reserves.

Talking about investing in Russia is a sore spot. It’s the opposite of virtue signaling - it’s viewed as cutting a deal with the devil right now. Nobody wants to be seen as contributing to the ongoing chaos in Europe, regardless of whether or not buying 100 shares of the RSX has any impact or not (it doesn’t). But it is moments like these, when you feel the most uncomfortable, that it is important to channel your inner contrarian. I’m interested to know how many of my readers have done this so far.

I reached out to my friend Harris Kupperman yesterday (who I previously interviewed here) to ask him if he was still investing in Russia, as he said he would be doing since the onset of the invasion intelligence from U.S. officials.

He told me: “The companies themselves are printing f*cking money. They sell commodities and their costs are in rubles. They produce like 10-50% of various global commodities. Putin is winning. Unless they take my shares away, who cares? In 6 to 24 months, this de-escalates and I win massively.”

“They f*cked [Putin] on SWIFT, but they are still begging for the gas/oil/fertilizer/wheat/etc,” he added. “Unless we all die from nukes or they seize/liquidate my shares, I am gonna win.”

My questions to my readers are as follows:

  • Have you considered investing in Russia due to the devaluation of Russian assets as a result of sanctions in the war?

  • If so, what names are you looking at and why?

  • What are the risks of such investments? Is it possible that they will not be permitted in the United States or other western countries?

  • On a longer timeline, where do you see Russia economically a year from now? Five years from now? Two decades from now?

  • Do you ever feel ethical conflicts when it comes to your investing? Have you felt them in this instance? I’d love to hear about it.

I’d love to hear what you have to say. Please leave a comment and join the discussion:

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