Tags: brics | russia | investing | markets

Some Bargains May Lurk Amid Escalating Global Tension

By    |   Wednesday, 26 March 2014 08:08 AM

It almost seems like the financial markets and the geo-political events live in two spheres that don't intersect.

The price action on Eastern European assets compared to the geo-political situation seems to indicate that the financial markets have completely discounted any further escalation of tensions in Ukraine and the surrounding region.

While I believe that there may not be an all-out war between Russia and NATO, or any such large-scale conflict, I still see significant tension and expect more saber-rattling.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

For instance, consider the stance that the BRICS (Brazil, India, China and South Africa) have taken in support of their compatriot, Russia. The group has rejected the use of sanctions and “hostile language” in the Ukraine crisis. They affirmed that the challenges within the regions of the BRICS must be addressed by the United Nations in a rational manner.

They are insisting on UN-based responses and are willing to stand against the "Western" powers. I see a huge rift here and the chasm only deepening. Under these circumstances, I can't accept the normalized pricing of certain assets as anything but manipulations in the markets.

The suggestion that Russia and Mr. Putin be barred from the G-20 summit in Australia in November has been rejected by the BRICS. In their view, the group should be making such decisions, not a couple of members.

Under these market scenarios, I can think of a couple of trades that can play out handsomely in our favor should the tensions escalate and we enter into a much more severe set of sanctions and counter-sanctions.

Russia controls most of the mining of palladium. It controls most of its production and in a crisis, Russia may use that to threaten the world. Back in 2000 when Russia held back supplies from the world, the prices skyrocketed 150 percent in a very short time. The current situation may spiral into that again. There are ETFs on the NYSE that can help you get this trade done in very simple terms.

The next trade is a stock trade. I am not the best in stock picking but even I can't ignore this one.

The trade that is "a screaming buy" is Gazprom. As you can imagine, the Russian MICEX is about 15 percent lower than the start of the crisis. So overall, we have a deeply oversold Russian stock index. Russian stocks (overall) are trading at an overall 5.32 P/E ratio versus the 17.20 P/E ratios for U.S. stocks.

But when you look at Gazprom, the stats are unbelievable. It has a P/E ratio of 2.33. Gazprom has a market capitalization of $80 billion today. It has assets of $260 billion and generates an astounding $33 billion in profits per year.

It produces oil and gas in many parts of the world, not just in Russia. The company pays healthy dividends and won't stop producing and selling oil and gas.

If the ruble recovers in price, it will further enhance the value of the stock.

I would take advantage of the two trades and secure a healthy profit.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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It almost seems like the financial markets and the geo-political events live in two spheres that do not intersect.
Wednesday, 26 March 2014 08:08 AM
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