The Blind Spot in the Rearview Mirror of Western Markets

At the time of writing, merely 1 day after the Fed’s much vaunted rate hike was initially met with manic excitement, mania has flipped to the opposite side of the spectrum as the US market dove 1,000 points on Thursday.

While attention is rapt and fixed upon (legitimately important) metrics such as the Dow Jones, the S&P, Treasury yields, etc., the market steeped in said mania has completely overlooked a massive rise in value of the Russian ruble — from the mid 80s to mid 60s in the span of less than a week. For days, on leading mainstream media finance sites such as CNBC and Bloomberg, the news had been far away from the front page for days on end. A distinct blind spot in financial markets has formed, and this wrap will not endeavor to determine whether this is willful blindness, or part of the market mania that the US and other developed markets have been wrapped up in as of late.

However, that blind spot is a massive radar signal on the prospects of the Russian economy via its most vital life indicator — its currency. And the Russian ruble has been positively surging. At the same time, reportedly investors in Western nations (ironically buoyed by Bank of America BUY recommendations in notes to clients…) that had the foresight to snap up Russian equities before the quagmire in Ukraine opened up, have since been supposedly served with notices to transfer these stocks to Russian owners, or outright forfeit their stock holdings — an unprecedented event in of itself.

Apparently, for Western owners of Russian equities, that ownership may only be valid in the event the brokerage one partners with allows them to do so…. but, I digress.

The prospect of this correlation forming amongst other countries is an interesting development, and justifies further monitoring. One will notice that in the case of Georgia and Kazakhstan, there has been only a retrace to pre-Luhansk and Donetsk RU diplomatic recognition levels, though the pattern of these currencies’ appreciating in line with following the ruble is quite noticeable. However, for most equities investors, markets such as Armenia and Kyrgyzstan are just too small to justify making an investment there. Kazakhstan thus stands out as a proxy play that can loosely track the performance of the Russian ruble, while its market capitalization to GDP is high enough to make investing worthwhile.

In terms of specific sectors, the banking sector and the bancassurance sector are worth looking into, as it allows a bit of a regional play in developing Central Asia while also being able to benefit from strength in the ruble in the coming time. For those investors wary of investing directly in the Russian equities market, the Kazakhstan equities market could serve to be a proxy move to gain exposure to an outperforming Russian ruble in the coming time.

Author : Keith Hilden is a Coordinator at the Caucasus-Asia Center.

[Disclaimer- This report is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities, or related financial instruments. The recipient of this information must make their own independent decisions regarding any securities or financial instruments mentioned in this report.

The author has obtained information included in this article from sources considered reliable. The accuracy thereof cannot be guaranteed by the Caucasus-Asia Center. Shared prices can go down as well as up and past performance is not necessarily a guide to the future.

As always, we suggest our readers to do your own due diligence and consult your own financial advisor before making your investment decision.]