A Rally Met With Disbelief
A big rally is currently underway in Russian stocks now that it seems certain that the Crimea is going to be absorbed into the Russian Federation. Many observers believe the rally won’t hold, which is actually a bullish sign. Keep in mind that the Russian stock market is the cheapest in the world. While it is cheap for a great many more or less good reasons, a trailing P/E ratio of about 5 certainly gives investors a big ‘margin of error’.
As an example regarding the current state of disbelief, here is a recent Bloomberg missive:
“The rebound in Russian stocks will prove short-lived as President Vladimir Putinfaces stiffer sanctions as he moves toward annexing Crimea, according to PineBridge Investments LLC and Firebird Management LLC.
The European Union and the U.S. announced sanctions targeting Russian officials, and President Barack Obamawarned the nation will face more penalties if it doesn’t pull back from Crimea. Putin is scheduled to address lawmakers today after more than 96 percent of voters in Crimea backed joining Russia in a referendum on March 16.
The Bloomberg Russia-US Equity Index climbed the most in two weeks yesterday and the Micex Index jumped from the lowest level since 2010 as the violence that some investors worried would break out during the referendum didn’t materialize. The Micex fell into a bear market last week, having plunged 15 percent this year, amid concern that Putin’s military incursion into Ukraine would deepen Russia’s economic slowdown. The Micex Index rose 0.3 percent as of 11:03 a.m. in Moscow today.
“There are clear indications that Putin is going to approve the annexation of Crimea and, as soon as he does that, the market will decline,†Ian Hague, founding partner of New York-based Firebird, which manages $1.3 billion of assets including Russian stocks, said by phone from Geneva yesterday. “The annexation will lead to much more damaging sanctions by the U.S. and EU. Russia is not getting away with it.â€
