RUSSIA: Beginning of Severe Economic Crisis and High Probability of Significant Market Correction
In our view the world has entered the the 1st stage of MULTISTAGE GEOPOLITICAL CRISIS, which will unfold in the course of 2014. We expect significant downside to Russian equities market, which is difficult to quantify as present. We encourage investors to take preemptive steps A.S.A.P, take strong, fast actions, as we expect the situation to develop in coming weeks in fast, cruel and nasty way….
We are not political analysts or economists. In this email we share with you our conclusions. Our team always had a crystal clear laser type focus on absolute return based on market principles. Our object is neither to create an “emotional horror movie”, not criticize any sides of the conflict, but to warn investors about potential developments and offer ready-made asset protection strategies and solutions in current situation.
CURRENT GEOPOLITICAL SITUATION
If someone is still thinking that the current crisis is about Russia invading Ukraine, someone must WAKE UP very quickly. The reality is that US has artificially created the situation in Ukraine (by financing fascists opposition and militia and destabilizing the situation in Ukraine in general) as a motive to weaken Russia’s position geopolitically and increase pressure on Russia to a maximum level. The current stand-off is about NATO political-military continuous move eastward and Russia reacting to it. We are not fans of Russia invasion of Crimea, but Russia’s actions have to be viewed through history’s perspective (over the past two centuries Russia has to fight back invasions of France by Napoleon in 1812, an alliance of France, England and Turkey during Crimea War in 1850 and Germany in both world wars). And someone should look at recent history of US foreign policy (invasions of Panama, Iraq, Afganistan, aggressive policy in Syria). Sending the fighter jets to Poland and Baltic states is definitely not an economic act of US. Despite all the politically correct declarations since the Word War II, US always considered Russia as enemy # 1 and used all their power to weaken Russia position globally ( the best example is an execution of the strategy of “managed chaos” which was implemented in Russia by the US in 1991 – 1994, when Russian economy was completely destroyed).
Our key assumption is that there will be no winners in current stand-off. At the same time we rule out any full scale military conflict. But as a result of sanctions, with weak government Russia will go through severe crisis…. and emerge from this crisis much stronger than it is now, as it did in the past after being under severe pressure or after all invasions. The coming crisis will help Russia to mobilize it’s resources, speed up economic and political reforms, partially restructure it’s economy. At the end the world will also realize the destructive role of the US in current developments. If we rank the crisis peak points from 1 to 10 with “1” being the beginning of the crisis in early March 2014 and “10” as a polar point — break-up of the world financial system we forecast the following:
April – May: further escalation of the crisis. Beginning implementation of the sanctions on Russia. Crisis grade: “4-5”. Strong reactions from Russia will follow.
June – August: Crisis unwinds to full power. Maximum possible sanctions implemented on Russia. Crisis grade “ 5-6”. Russia should enter severe economic crisis.
September – October: peak of the crisis. Crisis grade: “7-8”.
2015: thing will start to cool down. All major world players will begin to negotiate and look for peaceful resolution of the situation.
We are convinced that in the course of the 2014 -2015 US will implement maximum possible sanctions on Russia, will continue to increase pressure. And Russia will react accordingly. Recent US actions clearly demonstrate that US are ready to go as far as possible in this crisis. Just before S&P has put Russia on “negative” watch, U.S. securities regulators contacted public funds with investments in Russia to make sure they are properly managing risks and disclosing their holdings to investors as political tensions rose over Crimea US SEC warning. We understand that at the moment US is considering the executive order banning US Financial institutions from doing business with Russian financial institutions ( info is not confirmed by official sources).
Among most vulnerable areas to sanctions Russia has exports of mineral fuels ( Oil & Gas), which share in total Russia’s exports is 71,6 % and financial services, as many Russian financial institutions have subsidiaries in the West and are part of western financial system. We are confident US would use Oil price as a key pressure tool on Russia, as Russian budget is heavily dependent on Oil revenues. At the same time we think most investors do realize how EU gas prices will be impacted in case of any sanctions, limiting Gazprom gas exports to EU ( this risk already started to be priced in in UK/EU gas prices). Higher inflation and potentially inflated commodity prices will have dramatic effect of fragile EU economy.
Despite the fact that Russian market YTD is down more than 20 %, we see significant downside risks from current level. It is difficult to quantify the potential downside, whether it will be 10 % or 30 %. In October 2008 the Russian market was down 70 % + and in August 2011 30%+.
POTENTIAL OPTIONS FOR INVESTORS, WHO HAVE INVESTMENT IN RUSSIA AT PRESENT
We see the following options for investors:
- Reduce allocation to an absolute minimum – this mean getting out of the market. We are confident that risk/reward ratio is highly skewed towards risks. And potential downside for the market is significant.
- Hedge existing positions via bearish investment product.
At the same time we are happy to offer few hedging/asset protection strategies.
Dear friends and colleagues, many of you remember me in the past as beeing “always bullish”, as I have recommended you to increase your positions in Russia in October- November of 2008 and in August –September of 2011. During my 22 years in investment business, I always was an optimist. Today I remain an optimist and hope for the best, but at the same time I am being very pragmatic and dead serious about above described scenario.
Good luck to all of you in this difficult time.
Данный материал создан исключительно в информационных целях и не является:
1. Офертой или предложением о покупке или продаже каких-либо ценных бумаг или финансовых инструментов;
2. Информацией, на которую его получатель может полагаться в связи с каким-либо контрактом, соглашением или договором;
3. Индивидуальной инвестиционной рекомендацией.
Финансовые инструменты либо операции, упомянутые в данном сообщении, могут не соответствовать Вашему инвестиционному профилю. Определение соответствия финансового инструмента либо операции инвестиционным целям, инвестиционному горизонту и толерантности к риску является задачей инвестора. Ачкасов Максим Игоревич не несет ответственности за возможные убытки инвестора в случае совершения операций, либо инвестирования в финансовые инструменты, упомянутые в данном сообщении.
Данный материал является личным мнением Ачкасова Максима Игоревича. Любые мнения, включенные в настоящий материал, если прямо не указано иное, даны им в указанное время и могут быть изменены без предварительного уведомления. Материал не является гарантией или обещанием будущей эффективности или доходности от инвестиционной деятельности. Результаты инвестирования в прошлом не являются гарантией таких же результатов в будущем. Все прошлые данные имеют документальное подтверждение. Нет никаких гарантий прибыли или доходов от финансовых инструментов, пока иная информация не указана в соответствующих публикациях.