Russian Ruble Rumors-Don’t Pay Attention

We are all aware of the meteoric rise of the Russian Ruble vs. the U.S. Dollar the past several years. To current holders of Russian bonds this has been an added bonus on top of money they have already made. Many of us are also aware of the stirrings caused by the Russian government including the Finance minister indicating their alarm at an appreciating Ruble and willingness to eventually do something about it. We have been advising our customers not to pay attention to this, we are seeing politicians, much like they do in the U.S., play to special interest groups. We believe the decision makers in the Kremlin know better than to do anything that would interrupt almost a half-decade of unprecedented growth.

Don’t get us wrong, there have been industries that have had their competitiveness hurt. This includes industries that pay their costs in Rubles but get paid in dollars. For example, the steel industry and textiles. But even the steel industry has been diversifying by merging or acquiring assets overseas. Far more industries benefit from a strong currency such as financials, telecommunications, and consumer goods. Contradictory to some in the Russian administration’s viewpoint, virtually any economist in the world will tell you a strong currency will keep down inflation by making imported goods cheaper, and despite booming commodity exports Russia certainly is a big importer of goods. We believe recent comments have just been an attempt to keep the markets from getting too frothy. At the end of the day, rationality will prevail; it is in the interest of both the Russian government and investors alike.