Investing in Russia: on Paper and in Reality

Posted on Friday, September 19th, 2008 | In Russia

Contributed by: Jim Musselwhite (http://www.straightstocks.com) -

Investing in Russia has been hot since 1997, with capital funds flowing into the Russian market rising from $4.8 billion to $50 billion between 1997 and 2007. –and all time record for the Russian market.

While on paper it is easy to see that investing in Russia looks good –there’s a dramatic increase in wages and standards of living, huge currency reserves, and a fast growing economy, yet in reality these factors that make investing in Russia look so attractive aren’t necessarily as cut and dried.

However charming investing in Russia looks on paper, the country has had its share of problems. Russia has a history of government controlling domestic and international firms doing business there.

Russia also likes playing rough and tough with energy supplies, such that investing in Russia can be a bit too similar to playing Russian roulette. In 2006, for example, Russia cut off energy supplies to Ukraine and started cyber wars against the US, Georgia and Estonia. Volatile conditions like these make investing in Russia and the Russian market itself quite dodgy propositions at times.

Of course in August when Russia invaded Georgia is when investing in Russia really began to leave a bad taste in investors’ mouths and was a large factor in the Russian market to drop more than 23% this year.

Many analysts and investor experts are warning that while natural resources such as natural gas and mineral mining companies, these have been some of the most hard hit by government meddling. It seems the best bet for daring investment in Russia currently would be consumer driven plays considering how Russia’s middle class has increased and has extra money to spend on technological gadgets and such.