Russia has been at the center of attention in the past few months because of its major collapse. It’s no secret, Russia’s economy is centered more than perhaps any other major nation around oil. The recent recession hit hard in Russia as it decreased demand and prices. Recently, Russia has been on the defensive as it defends itself on many fronts. Most recently, US Vice-President Joe Biden spoke very openly about Russia’s demographic problems and about its impact over the next few years. While some countries such as Japan have been acting to improve their long term prospects, it seems as though Russia has so many problems that it does not quite know where to put its energy. You can read very interesting article about Russia’s demographic problems.
Another more short term problem for Russia is that its main customer, Europe is in very bad shape, a lot worse than the US in many respects and this could affect the Russian economy as it still depends on exports (as does Canada) for a major part of its economy.
While I do agree that energy prices will rebound and would fear being short Russia, I think that Canada will profit as well from a bump in natural gas and oil prices and overall has a much better current situation. As well, seeing Russia up almost twice the growth of the Canadian market so far in 2009 gives me a good feeling that this will be a promising trade.
The danger of course is that Russia being in many ways an emerging economy, its stock market might enjoy more growth in a context where the world economy would pick up. But since we still do believe that the recovery will be slow, we expect Canada to fare better.
So there you have it, Long EWC (Ishares Canada), Short RSX (Market Vectors, Russia)