Bet on higher inflation after Presidential elections, some companies will benefit, certainly some won’t. We already know by government official’s statements and an experienced eye that certain industries such as electricity, gasoline, and natural gas have been artificially held back from rising for political reasons. After election season, expect dramatic increases. These are not the only examples, expect more. Additionally, the Ruble has slowed in the meteoric rise vs. the U.S. Dollar and Euro, the strength of the Ruble was one of the few options the government has in limiting inflation.

I am fascinated when reading other analysts in the financial media talk gleefully about how one does not need to worry about their investments in emerging markets because these markets are exploding and one way or another they just have to be there. I’d like to point out that while indeed, economies like Russia, China, Brazil, and India stand at only the beginning of what promises to be immense growth, don’t forget, when you buy stocks and bonds, you are buying a piece of an individual company, not necessarily a country. In fact, when you consider how much hype is in the media, money pouring over the border, and combine that with the facts it is a different environment than what you are used to-having a guide that knows the terrain and will be your long-term guide is more important than ever.

The Russian economy is indeed a sight to behold, the trouble is the secret has been out for quite some time. There have been numerous IPOs debuting in the past several years and many more slated for the next 6-12 months. Looking back many of the big cap IPOs stock have not performed well in the ensuing year. A developing market like Russia does offer a compelling story, but, we do not recommend following the herd and chasing the same stocks, remember what makes good developing markets so good, the idea that undiscovered stocks are waiting to be found. Before you buy, look around and see if what you’re buying is really undiscovered. We have found some undiscovered companies in the healthcare industry that have a promising future. An aging demographic, growth in income, and other factors will enable several sectors and companies to grow. This is one area you don’t hear about too often that offers promise, get off the beaten path with us and we’ll show you more.

Russian currency reserves topped four hundred billion, this has nothing directly to do with today’s topic, but it is so impressive, I felt I had to mention it. Energy companies, after a period of declining prices, posted a good week last week. This is due to oil hovering around 68 dollars a barrel in New York. We view this and any increases in the short-term as an opportunity to lighten up your positions and get out while the “gettings good”. Nothing has changed, not even cosmetically with the sector, same profits are taxed the same way, same disincentives for additional exploration. If you believe oil is headed toward 80, stick around for the ride, otherwise sell into the rally, and talk to us about the many other undiscovered opportunities just waiting for you.

6/11/07

The week has started off with more phenomenal news for the Russian economy, maybe the most phenomenal thing is the fact news like this has become almost boring and ordinary. Firstly Japanese auto manufacturer Suzuki will begin construction on a 100 million dollar manufacturing plant that will produce 30 thousand vehicles beginning in 2009. Russia’s protectionism in the auto industry turned out to be a good idea. In many cases auto manufacturers have decided to locate their production facilities for much of Europe in Russia to beat the duties. At the latest economic forum in St. Petersburg over13 billion USD in deals were signed with many billions coming from overseas investment.

There are many quality companies in the consumer sector that have been doing well and are poised for even more growth. As the economy grows and the Russian consumer has more discretionary income, as well as more income to spend on the quality staples of ordinary life, there is not better time to explore this sector for some choice picks. Leading Russian dairy Wimm-Bill-Dann has reported great earnings and European dairy giant Parmalat has been rumored to be considering acquisitions in Russia, with a takeover of regional or national companies the probable strategy as opposed to organic growth. The point of this brief entry was to emphasize that, although Russia has morphed into a much different country over the past ten years, there is even much more room for growth.

6/04/07


We are approaching the beginning of the campaign season with everything from the Presidency to the Mayor’s office of Moscow up for grabs. We thought this might be a good opportunity for you to evaluate the political risk your investments might face. In Russia business deals are based on personal relationships, after election season, needless to say there will be whole new cast of characters in charge. A Russian real estate company did not perform well at a recent IPO in London. One reason is it does much of its business in Moscow and Moscow will soon have a new Mayor. Of course most corporations will not notice a difference but no doubt many will. This is an example of when financial statement analysis having its limitations, let us provide the needed insight and experience you require.

More oil taxes

The Russian government will be raising oil export duties putting even more pressure on exporters’ profits. The formula is based on the average price of the previous two months. In situations where the price is rising, there is always going to be a lag between the price of oil received and what the government duties are, benefiting the oil company. This is a double edge sword though, in periods of decline, or when the price remains stable, oil companies profits take a double hit, first from the loss in revenue and secondly from the government’s increase in tax rates. This is a situation we are monitoring on a daily basis.