Russia

The recent episode of Russia's response to Georgia's military intervention in South Ossetia, and the response by the West just happened to occur about the time of my initial visit To Russia. Needless to say, despite having invested positions in Russia, many of my perceptions had been formed from the context of the cold war rhetoric of the past, current geopolitical rivalries, and whatever books and articles I could assimilate about the region, including an excellent one by the eminent scholar Marshall Goldman, Petrostate: Putin, Power, and the New Russia. I could not help but to have some trepidation about going to Russia during this time.

From a professional perpective, while in Russia, I had the good fortune to be able to meet and talk with people in Russia'a emerging financial planning profession; meet a well respected economist, an oil & energy analyst, an asset manager, and a managing director of Troika Dialog, a Russian investment bank; perhaps equivalent to a Russian Goldman Sachs. Additional meetings with the Lukoil State Pension Fund rounded out the opportunity to learn about, and understand better Russians, and their current political and economic environment.

From a personal perspective, I had the opportunity to have my education about Russian history deepened by at least half a dozen native guides, and visits to Russian cultural and arts venues. Looking back at approximately the past 100 years in Russia's history, I could not help being extremely impressed at the intelligence, resilience, and strength of the Russian people. Having gone through two revolutions taking it from a Tsarist empire to the communist country of the Soviet Union, two world wars during which in the Second World War estimates of up to 27 million Russian people died, including around 2 million in St. Petersburg alone, watching the communist state dissolve and re-emerge into a rudimentary democracy, and having it crumble economically around 10 years later, only to have it re-emerge as a economic, and strategic, geopolitical power on the world stage represents a remarkable testiment to the human spirit of resilience.

What also became apparent during my visit is how poorly it seems Russia and the West understand one another, as well as the fears generated by the threat of disturbing the global status quo.

As an investment advisor, my experience suggests to me that the recent decline in value in the Russian markets may be seriously undervaluing the investment potential of an emerging economic power that appears to be destined for an increasingly strong role in global affairs. This is not to imply that the risks are negligible with respect to these investments. Looking, however, at some of the fundamentals, such as Russia's extremely high literacy rate, a vast need for infrastructure development, the need to economically uplift the majority of Russia's population to an emerging middle class, and Russia's vast natural resource and energy assets, suggests a huge potential over the next 10-15 years.

Unless politicians allow themselves to become locked into a cycle of escalating adversarial rhetoric, increasing the possibility of misjudgement and miscalculation, Russia and the West will likely work out their issues into a new balance of power arrangement. This will likely not be a clearly delineated point, but rather an ongoing process with contributions from other major global players such as China. If this perpective is correct, the investment potential outcome may well warrant the assumption of some degree of the risk in these positions. At present, in particular, this period of crisis and declining Russian asset values may represent an opportunity to secure a piece of Russia's future prosperity.