How Cheap can it Get?
Pfäffikon SZ, Switzerland – It is difficult to ignore Ukraine this week. From a humanitarian point of view, it is horrible what has happened to the country. But the response from investors was and is excessive. Last Monday, we took the opportunity to add many additional shares to our existing portfolio in the CIS region. How cheap can it get? I feel sorry for the investors who use turbos and sprinters. A lot of money has been paid to gain experience in the past week.
Unpopular
Back to Ukraine and Russia. A common question we are often asked is, ‘why is Russia so unpopular at the moment and how might this change?’ There are probably a few good reasons for the current sentiment, but it is primarily a political issue.
Many investors have decided not to invest under the reign of Putin. They are ignoring the economic considerations, which is a pity. Russian businesses are quickly changing in a positive manner, something that is missed by many Western investors. Many prefer the negative return from Swiss and German bonds, rather than looking for attractively priced companies with an excellent and proven business model.
Fashionable Shares
I also find it a bad omen that so-called ‘fashionable’ shares such as Netflix, Tesla and Facebook now receive staggering ratings. I suspect that many investors have no idea what they are investing in and have never even read one annual report from the company. The gap between the real economy and the financial markets is slowly growing and that doesn’t feel good. According to the famous British economist John Maynard Keynes such a process can last for years. 1,900 points in the S&P 500 seems only a matter of time.
I also find the outflow at Pimco striking, the largest bond investor in the world. Even more interesting is the departure of CEO Mohamed A. El-Erian from this fund, who, in my view, is a very capable investor. It is becoming increasingly clear that El-Erian clashed with founder Bill Gross on the way forward for the huge fund. Many see Pimco as a sinking ship when interest rates become attractive. This is certainly not inconceivable.
Outperformer
The Russian economy has been an excellent performer for over two decades. The EU can learn a lot from it. Since 2000, the Russian stock market has outperformed all international indices, except in the last few months. This is something that many investors are not even aware of. We have been intensively following the CIS region for over seven years and every time we are surprised by the positive results. Continuous improvements are being made at all levels of Russian society. However, the Western media seems to make a sport of consistently writing negative articles about the region.
China
My original plan was to look deeper into the problems in China, whose immense parliament came together this week. The forecasted growth rates of 7.5% GDP are simply too rosy. Additionally, there are the lies about China’s mountain of debt, which is probably significantly higher than the Chinese government would have you believe. Not to mention the forthcoming property bubble – which makes Dubai look like child’s play. The question is, when will it burst? The financial problems in China are much more important and more worrying than, with all due respect, the recent ripples in Ukraine. But the current situation has forced me to look at the unrest in Crimea, because I have written more about this region in the last few years.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
