For example, in the wake of Russia’s financial crisis in 2008 and given all that we know about the problems in Russia, I think most investors then would not have given it much of a chance.

If we had to pick then which of the BRICS — Brazil, Russia, India and China — would have had the best decade, I don’t think many people would’ve picked Russia. In fact, the casual investor today asked the same question about which one did best in the decade 2000-2010 would probably pick anyone but Russia.

Yet Russia was the best by far:

A country about which perceptions lean so heavily one way and yet that investment performance tells another story entirely.

In retrospect, it’s easier to see the kernels of that success. The decade was good for natural resources and Russia is resource rich. Consider that Russia has:

• 25% of the world’s natural gas reserves

• 15% of the world’s coal reserves

• 12% of the world’s crude oil

• 20% of the world’s nickel.

In terms of actual production, Russia also ranks highly. It’s the second-largest exporter of oil, for example. It produces nearly 20% of the world’s natural gas, 18% of its nickel and 8% of its uranium. These numbers come from UFG Asset Management, which recently highlighted the performance of Russian markets.

Russia also has the advantage of having less debt relative to the size of its economy than its BRIC peers. This, from UFG:

Russia is also General Motor’s No.1 market worldwide in terms of market share and profit. Coca-Cola recently announced sales rose 31% in Russia. Its Russian division makes three times the profit of its Chinese unit on one-third of the sales. So it’s a growing consumer market, too.

What’s happening in Russia is not happening in isolation, of course. The world is shifting. The world’s markets are becoming less and less of a U.S.-centric story.

We don’t have to like it, but as investors, we should accept it and try to take advantage of it. A fixed worldview that eschews emerging markets as risky is going to leave a lot of money on the table.

And in truth, the term “emerging markets” is increasingly unwieldy and meaningless. It seems a useful handle, but anything that groups Brazil and Thailand and Mozambique and Turkey together isn’t really very useful to an investor. There are vast differences in countries and investment prospects. We really have to start thinking about the individual countries themselves.

Investing is a game of comparison, of this against that, of relative attractiveness between different assets. In isolation, Russia may seem risky and an unlikely place to make a lot of money. However, in comparison with the risks out there in other places, it starts to look better.

This is not necessarily an endorsement of Russia, by the way. One of the biggest problems with Russia is the lack of good disclosures, which keeps bottoms-up investors from investing in stocks there.

Great investment ideas are found in all kinds of places. An open mind, and a willingness to change your views, is an important part of being a good investor, as Russia’s last decade of performance shows.

Sincerely,
Chris Mayer
Penny Sleuth

March 7, 2011

Great Investments in Unlikely Places was originally featured in the Penny Sleuth.

As recently as September 2008, realtors could claim that no one had lost money in the Dubai property market. That’s no longer true. In fact, now the market has too much of just about every property type. One headline story noted how 32,000 homes are about to come on the market next year, which is a big number to choke down in any city. Dubai had a huge property boom and now must suffer the flip side.

The hotels, too, are pretty empty. I’m staying at the new Address Hotel downtown, which has been open for only 25 days, we are told. I’m the first person to stay in my room. It still has that new carpet smell.

I wandered down for breakfast and was alone in a cavernous dining room. The hotel is brand-spanking new and everything looks wonderful. It’s just mostly empty. I think there are more hotel workers than there are guests.

In Dubai, revenue per room is down 35% from a year ago. Yet there is still an expansion going on. Next year, estimates call for a 15% increase in the number of rooms. This would mean a 40% increase in two years.

Over breakfast, I perused my complimentary copy of The National. One of the things I like to do in a foreign city is to read the local newspapers. I’m kind of a newspaper junkie anyway — I get three dailies delivered to my doorstep at home. In any event, I always find interesting nuggets from a perspective you might not get if all you read is The Wall Street Journal or Financial Times.

Today’s business page carried an array of tales… There was the arrival in Doha of a new LNG tanker, fresh from Seoul’s shipbuilding docks. There was a story about how UAE consumer confidence is up. Also, notes on bond issues in the Gulf, the latest figures on money supply in Kuwait (it’s rising at a frighteningly quick pace of 18.7%), the price of villas in Dubai and more. All sorts of little odds and ends that help paint the picture.

There was also a lot of chatter about infrastructure, which I found particularly interesting. Abu Dhabi, the capital of the UAE, which I will visit on this trip, is looking to raise $100 billion for infrastructure projects. From The National: “The emirate needs to fund new transport, electricity and telecommunications schemes…”

Dubai itself also has ambitious infrastructure spending plans. Last night, as we made our way to our hotel, we could see the new Dubai Metro stops along the way, which, lit up as they were in soft blue and white twinkling lights, looked like something out of the future.

Incredibly, the Dubai government last year spent about 45% of its budget on infrastructure projects — mostly on the roads and ports. But there is a lot more on tap, as The National reports:

“Dubai could invest as much as $20 billion in desalination projects in the next decade alone as it increases its water output by 2.72 billion liters a day… [There are also] plans to add 14,405 megawatts by 2017… Construction costs for those new plants amount to $11.6 billion, while infrastructure costs, including substations and transmission lines, will be about $11.6 billion.”

Sincerely,
Chris Mayer

October 6, 2009

Dubai’s Infrastructure Opportunity was originally featured in the Penny Sleuth.

No one has been safe during this financial meltdown. Gold is trending lower. Gas is cheap again. Commodities generally are in the dumps. Stocks are trashed. Emerging markets are crushed. Safe havens? Get outta here — there is nowhere to hide…

If there is a silver lining to the recent global selloff, it is the abundance of cheap stocks on the market right now. No, we don’t think your should borrow a massive amount of money to invest, hoping for a quick turnaround. But it is time to cautiously look at the opportunities the market presents…

Often, it is the small companies that lead the charge toward market recovery. Just take a look at what some of the market specialists are saying:

“When you look back over the last 10 recessionary environments, what tends to lead back on the upside is small-cap equities.”

— William Greiner, Chief Investment Officer of UMB Asset Management

“Like springtime crocuses, small-cap stocks flourish once the harsh cold of a bear market is over… Because small-caps are undervalued once the market turns around, they benefit disproportionately from an earnings recovery.”

— Larry Light, Wall Street Journal

Now, who knows when the bear market will end, or when the stock market will find a bottom? After the Dow’s 1,000-point rebound on October 13, we all hoped the worst was over. That rebound, however, proved to be nothing but a tease. Over the following weeks, the Dow proceeded to give back every bit of those 1,000 points.

So, at times like this, it’s nice to remember that small companies usually lead the bull charge. Because investors know that when your team is down 10 runs and you come up to bat, you don’t waste your time bunting a runner to second. You may as well swing for the fences with small companies poised for triple-digit gains…

That’s why we’ve come up with a list of penny stock plays for the growth-oriented investor. There are a lot of values to be found right now, and we’ve recently gone through and selected our favorite home-run candidates for our Penny Stock Fortunes readers.

Sincerely,
Jim Nelson & Greg Guenthner

October 27, 2008

Making a Buck in a Bear Market was originally featured in the Penny Sleuth.