The Russian ruble is on a tear. It broke below 50 to the dollar for the first time since November. The Russian economy has withstood everything the West has thrown at it in terms of sanctions, and then some. That other part I am referring to is the collapse in oil prices.
Russia's economy has not gone in recession, despite widespread forecasts that it would. It's bouncing back. Moreover, the U.S./European sanctions have backfired in two ways: they have put Russia on a path to becoming more self-sufficient, with more domestic spending and investment, and they have blocked the U.S. pivot to the East, to China.
Russia moved quickly in response to U.S. actions to solidify economic and strategic relations with China. The effect has been to offset many of the measures that U.S. policy makers have come up with in an attempt to isolate the Russian bear.
There's also the question of whether the sanctions can even go on much longer. The EU's sanctions against Russia expire in June, and in order to extend them all 28 members of the EU must agree on that. Right now, however, it looks doubtful, as Greece and a handful of other states remain opposed.
Back in February, I spoke about the Market Vectors Russia ETF (RSX), which was trading at around $17 at the time. It has climbed to over $20 recently, a gain of nearly 20%. I think it is going to go higher, particularly now that the ruble is recovering. The rebound in oil prices doesn't hurt either, as about half the fund's holdings are oil and gas related.
The real boost, however, may come in June, as I said, if the EU fails to extend the sanctions. Make no mistake, the United States will put a lot of pressure on Europe to keep those sanctions in place as Washington not only seems to see them in its interests, but also as a barometer of the U.S. European alliance.
Washington's interests notwithstanding, the measures have taken a significant toll on the European economy and even on the euro, as price discounting by exporters has led to a weaker euro exchange rate. It's almost a certainty that these businesses want to see normal trade with Russia restored.
If in fact Europe does decide to forego extending the sanctions, then that represents a major policy blow to the United States, and a shift away from what was considered to be a strong U.S. European alliance. It may also spell trouble ahead for NATO.
From an investment standpoint, however, it would, without a doubt, spell a much better longer-term outlook for Russia and a victory for Vladimir Putin and his efforts to drive a wedge between the U.S. and its allies.
He's already succeeded in one-upping the U.S. in terms of relations with China, as Sino-Russian cross border trade deals, common currency arrangements, participation in the Asian Infrastructure Investment Bank and various other agreements leave Washington out in the cold.
Maybe I'm getting way too geopolitical here, but I think it all boils down to a much improved outlook for the Russian economy, and these stocks look cheap. I'd continue to buy RSX on the dips.