David Semple, Director of International Equity For Van Eck Global Takes Stock In Russian Investments
Tuesday, August 26, 2008JEFF YASTINE: Russian stocks fell sharply today after the Kremlin officially recognized Georgia's breakaway provinces of south Ossetia and Abkhazia as independent states. Russia's move drew strong criticism from the U.S. and Europe and it's the latest blow for managers of Russian- related stock funds, like the market vectors Russia ETF, managed by Van Eck global. Earlier today, I spoke with Van Eck's director of international equity, David Semple and began by asking when the pain would be over for investors.
DAVID SEMPLE, DIR. OF INTERNATIONAL EQUITY, VAN ECK GLOBAL: It's obviously a very tough question to answer. We've got a lot of bad news reflected in the market, (INAUDIBLE) down 50 percent approximately from the high. There is certain amount of risk out there and investors are just very unforgiving for any kind of risk, whether it's geopolitical, interference in companies or anything else. So, I think it's -- we have seen a lot of the pain already reflected. But nobody I think is -- very few people will be willing to jump in right now. You know longer term I think the story still stands up very well.
YASTINE: David, break it down for us. We have a chart of your fund. The symbol is RSX, the market vector, Russia, ETF. You can see the decline since the May/June highs. How much of what we are seeing is related to Georgia and how much of it is really just related to the declines we've seen in the oil markets over the past few months or is it just a lack of confidence in the Russian way of doing business these days?
SEMPLE: It's obviously a combination of all three. It doesn't help with the headlines coming across the wire -- I frequently on very geopolitical issues. But mostly people invest more on the earnings basis. And obviously the dependency on natural resources is extremely high in the Russian market. You know there is a certain capriciousness from the outside it appears a certain capriciousness in terms of the dealings with individual companies. So, I think it's, you know, we have seen a lot of it in the market is my bottom line.
YASTINE: What is your sense regarding this situation as far as Russia as a friendly place for capitalists. We've seen episodes over the past number of years with the Putin government as far as Yukos and other efforts to sort of reclaim oil assets that are, you know, previously been shared with Exxon and the rest. Is Russia still a place where investments can be made and not feel like they're going to be expropriated by the government as soon as they start to bear some value?
SEMPLE: In any country that you invest in, developed and emerging markets, sometimes there is a risk of windfall taxes in one form or another or where a company has a monopoly and that monopoly is withered away by courts or by government or whatever. It's still a great place to invest in terms of commodity exposure and that's the bottom line. You can flow through from that in terms of cash flow generated from that into the broader economy. So things like stock market, super markets like media companies and they're all doing very, very well. Earnings are strong there.
YASTINE: And it sounds like what you're saying is that in the last 30 seconds or so the main story still holds up on Russia, in that if you're making a play on oil and higher prices for oil at some point later than sooner vice versa, that oil and Russia is the way to play.
SEMPLE: Definitely that's the highest correlation. There's no question about that, but you know you have to look on a medium term basis rather than the short-term. Even the oil price at this level, there is obviously a very healthy cash flow being generated in the economy and for oil companies in particular.
YASTINE: David we will end it there. We appreciate your time on the program.
SEMPLE: You're welcome.
YASTINE: Our guest David Semple, director of international equity at Van Eck Global.
