Buying the Ruble again

The developments this week have been very exciting. I would never have thought that I would see a EURRUB above 80 that quickly again, but WTI below 40 has helped. I took the opportunity to increase my RUB exposure once more at what I believe are attractive levels, despite the fact that I believe this week’s rout is just the beginning.

A few facts: (for my stance on Russia see for instance here, here and here)

Russia’s external debt has decreased from USD 680bn at the beginning of Q4 2014, i.e. the beginning of sanctions and the Ruble crisis in December, to USD 556bn at the end of the first half 2015. At the same time, its foreign exchange reserves have dropped only by USD 60bn over the same timeframe and currently stand at comfortable USD 360bn. Further, Russia’s current account is in surplus, despite the significantly lower oil price enabling it to pay down external debt further. It can be said that from a financial perspective, its financial position is improving, despite lower prices for its export commodities.

I know, I know: you didn’t read that in the NYT or the FT.

As many readers are aware, I have been short the CNY and the AUD for more than two years, since I believe China is unraveling (and commodities with it). My bearishness on all things commodity related and my bullish Russia view might sound inconsistent to some and it probably is, but I believe that demand for the bulk of Russia’s commodities exports (Energy) is less dependent on the China story than for others such as iron ore, or copper. Relative strength if you will.

Further, in many commodity sectors, Russian companies are the low-cost producer enabling it to sit out a market downturn much longer than global competitors. Add to this their usually conservative capital structure (with the exception of Rosneft) and you probably recognize why I am less pessimistic about than most market participants (to say nothing of journalists and our “leaders”)…

And do not forget that the main export market for Russian energy is Europe, not China which should at least keep volumes constant…

This is not a recommendation to buy Russian assets, do your own research.


One comment

  1. Russia is indeed in a stronger economic and financial position than generally assumed, and the country’s ability to withstand external shocks should also be superior to most other commodity exporting nations. The bear market in commodities looks secular in nature though and could last for quite a while, considering the previous one ran for 20 years. If such case, some commodities might even test and break the lows of the previous bear market. The question then becomes – for example – how the ruble would trade relative to the dollar if crude were to test $10 per barrel.

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