Precise Investors

Saturday, July 2, 2022

Russia top pick for investors amid global energy chaos

global energy chaos

The world’s biggest energy exporter has more than US$600 billion in reserves, a low debt burden, and is pushing hard to tame inflation

Surging energy prices are kindling bullish bets on developing-nation exporters, with Russia emerging as traders’ favourite investment destination.

Russia’s ruble has gained more than any other emerging-market currency this month, bolstered by the prospect of higher oil revenues, while the nation’s stocks outperformed as a broad gauge of developing equities sank. OPEC’s monthly report will be closely watched this week as investors seek further clues on the outlook for the oil industry.

Investors have switched to weighing the assets of energy exporters from Russia to Colombia, whose peso is the No. 2 performer this month, to determine which offer the best bet.

Energy prices will remain elevated and companies in commodity-exporting nations will be beneficiaries of the global tightness in the supply of power-related commodities, said Ali Akay, the London-based chief investment officer of hedge fund Carrhae Capital. This theme should continue to re-rate energy and materials exporters.

Ructions in the energy market have thrown a spotlight on Russia’s status as an oil and gas superpower and its healthy finances. The world’s biggest energy exporter has more than US$600 billion in reserves, an enviably low debt burden, and is pushing hard with rate hikes to tame inflation.

Money managers like London-based hedge fund Carrhae Capital have responded by partly shifting from Chinese technology shares to Russian energy companies in the third quarter. Wells Fargo Asset Management also moved its investments from China to Russia. JPMorgan Chase & Co. added to its position on the Russian Depositary Index as it remains bullish on commodities and oil-related bets into year-end, strategists led by London-based Davide Silvestrini wrote in a report.

Higher oil prices will drive higher earnings and dividends in the energy stocks which account for 59% of the index, and drive a stronger ruble which in turn drives the domestic stocks, another 25% of the index, they wrote. As such, it is fundamentally perfectly suited as an equity vehicle for our bullish call on commodities, and oil in particular.


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