Dialing for Profits with Russian Telecom Stocks

Video Transcript

Hi, this is Rudy Martin for Uncommon Wisdom Daily.

I watch the emerging markets very closely, and it’s clear to me that there’s been a fundamental shift in the investment strategy for these countries.

In the past, China’s economy was growing extremely quickly, driven by an insatiable appetite for raw materials. That demand, in turn, drove up oil, iron ore and other natural resource prices. But now, prices seem to be peaking, forcing companies like BHP Billiton and Vale to cut back their capital expenditure programs.

At the same time, we’re seeing a similar shift from high-end luxury brands to what I call “Luxury Light.” For example, Tiffany & Co. was on a roll during the boom years in China. But with Europeans and Asians buying fewer $65,000 diamond necklaces and $10,000 amethyst earrings, Tiffany may be in for a less-than-glittering 2012. The company has posted three straight disappointing quarters, and has reduced its profit outlook for next year too.

So now that natural-resource firms and high-end consumer brands are less attractive to investors, where can we find good opportunities among BRIC stocks?

Well, one country I’m targeting is Russia, and in particular the telecom sector.

Russia is notoriously hostile to foreign companies, and that hostility only seems to be increasing. The country recently awarded four high-speed LTE licenses to the big three Russian mobile phone groups — MTS, MegaFon and Vimpelcom — as well as state-controlled Rostelecom. That decision left Sweden’s Tele2 — Russia’s fourth-largest mobile operator in terms of subscribers — out in the cold.

Meanwhile, Vimpelcom has been the subject of a dispute that could have huge implications for the Russian telecom sector going forward. Vimplecom’s largest shareholder is Norway’s Telenor, which has been trying to boost its stake in the company well above the 30% limit mandated by Russian law.

In response, Russia’s anti-trust regulator has prevented Vimpelcom’s Russian unit from paying dividends on its 2011 profits. Until this dispute is resolved, the potential for growth in Vimpelcom’s stock is completely stalled.

I’ll be watching very closely to see how the situation plays out, and how the other major players in Russia’s telecom industry react to it. In just the last 30 trading days, American Depositary Receipts for the country’s biggest fixed-line telephone company, Rostelecom, have surged 10%.

It seems to me that in this instance, the rich are getting richer. So I’ll be sure to let you know if I see a good opportunity to make a play in the Russian telecom sector.

I’m Rudy Martin for Uncommon Wisdom Daily. Thanks for watching.

Rudy Martin, editor of Global Trend Trader, is the President at Acamar Global Investments, with 25 years of experience serving institutions and high net-worth individuals.

Rudy started his investment career in 1983, co-managing a $2 billion private investment portfolio for Transamerica. Later, he went on to Wall Street as an equity analyst for Dean Witter and traveled globally, serving major institutional equity investors. In 1995, he joined Fidelity Investments as a Senior Investment Analyst for a series of multibillion-dollar fund portfolios.

During his career, Rudy has received awards for institutional investing and is widely quoted in the financial press and on television about topics related to global investing and emerging markets. For more information on Global Trend Trader click here.