Since the collapse of the Soviet Union, Russia's economy has undergone significant free market reforms. And between 2000 and 2008, the country's nominal Gross Domestic Product (GDP) doubled, making it a very important emerging market economy.
Note
Following Russia's military assault on the neighboring nation of Ukraine in late February, the U.S. and other nations have blocked many of Russia's largest banks and enterprises, including energy giant Gazprom, from their financial systems and markets.
Despite this tremendous growth, Russia's economy is primarily commodity-driven and carries several risks for international investors. The lack of predictable tax and business legislation has been a significant barrier to private business and investment.
At the same time, the collapse of crude oil and other commodities in 2015 and 2016 put downward pressure on the economy. In this article, we will take a closer look at Russia's economy, benefits, and risks for investors, and the best ways to invest in the emerging market economy.
Key Takeaways
- Russia is one of the fastest-growing emerging markets in the world and a member of the BRIC nations, but it also has many political and economic risks.
- Those looking for an easy way to invest in Russia should look at ETFs and ADRs.
- Those looking for more direct access may want to look at trading shares on the Russian RTS.
An Overview of Russia's Economy
Russia is best known among international investors for its energy industry, as a leading exporter of oil and natural gas. But, those investing in Russia are also watching its growing information technology (IT) and telecommunications sectors. In particular, the country's software industry is one of the fastest-growing markets in the world.
The country's recent economic highlights included:
- Gross domestic product (PPP): $1.47 trillion
- GDP growth rate (2021): 4.3%
- GDP per capita (2020): $10,126
- Unemployment rate: 4.3%
- Inflation rate (CPI) (2020): 3.38%
The Benefits and Risks of Investing in Russia
All emerging markets carry an element of risk. Russia's high growth rates may be a bullish sign to investors, but its checkered history makes it riskier than more developed markets. Still, it's hard for international investors to ignore one of the world's hottest commodity markets in the world.
The benefits of investing in Russia include:
- Rich in natural resources: Russia is the world's largest exporter of natural gas, as well as one of the world's largest oil and steel producers.
- Strong emerging industries: Certain niche industries, like information technology and telecommunications, have experienced significant growth.
- Growing middle class: Russia has an enormous population of 142 million citizens with personal incomes that are growing an estimated 10% to 15% each year.
The risks of investing in Russia include:
- Lack of regulation: Russia does not have many safeguards in place to protect investors, especially compared to the U.S. or free market-orientated economy, it still faces a higher level of instability and risk than the U.S.
- Reliance on natural resources: Russia is one of the world's largest energy exporters, which means that its economy is reliant on energy prices. If energy prices take a downturn, it could negatively impact the economy, which happened throughout 2015 and 2016.
The Best Ways to Invest in Russia
There are many different ways to invest in Russia, ranging from U.S.-listed exchange traded funds (ETFs) to securities listed on its own stock exchange, the RTS (Russian Trading System). ETFs represent the easiest way to gain exposure without worrying about the legal and tax implications of American Depository Receipts (ADRs) and domestic securities.
Popular Russian ETFs include:
- The Market Vector Russia ETF Trust (NYSE: RSX)
- The iShares MSCI Russia Capped Index Fund (NYSE: ERUS)
- The SPDR S&P Russia ETF (NYSE: RBL)
- The Market Vectors Russia Small-Cap ETF (NYSE: RSXJ)
Russia's most popular ADRs include:
- Gazprom OAO ADR (OTC: OGZPY)
- Lukoil ADR (OTC: LUKOY)
- Mechel OAO (NYSE: MTL)
- OJSC Polyus Gold ADR (OTC: OPYGY)
International investors looking for direct exposure can purchase Russian securities directly using any global trading platform with access to the Russian RTS. The country's most popular stocks are listed on the RTS 50 index, which is the country's equivalent to the S&P 500 in the U.S.
FAQs
While everyday investors may not be able to invest directly in the Russian stock market, you may have some exposure to the country through mutual funds, exchange-traded funds (ETFs), and American depositary receipts (ADRs), which are certificates issued by U.S. banks that represent a certain number of shares in foreign ...
Why do people invest in Russia? ›
Why invest in Russia now
- Investment opportunities across all of Russia.
- A booming digital economy.
- A friendly environment for foreign businesses.
- New opportunities through sanctions.
- Conclusion.
Post-Soviet Russia has never spent this much on the military before. The war expenditure has reached 37.3 percent of all budget spending, 2.5 times the pre-war average. The government planned to allocate 17.1 percent to the military. The number is impressive in dollar terms too: $73 billion.
Is it a good time to invest in Russian stocks? ›
International investors in Russian securities have faced significant restrictions in managing and valuing their positions since the beginning of the Russia-Ukraine war, making the market an unviable investment option for many.
Are Russian stocks still banned? ›
Americans will still be allowed to sell Russian stocks and bonds, although only to a “non-US person,” Treasury said. The guidance explains that Americans are not “required” to divest Russian securities and may continue to hold them.
Is it legal to buy rubles? ›
The answer is partly yes and no. The clearest way to buy Russian rubles is to present foreign currency to banks, hotels, and exchange bureaus within Russian borders. This option is, of course, limited only to those who are eligible to enter the country.
Why is trading in Russia difficult? ›
Companies now find themselves caught between Western sanctions and public outrage on the one hand, and an increasingly hostile Russian government on the other. The Kremlin is making it more difficult for Western firms to sell their Russian assets — and imposing steep discounts and punitive taxes when they do.
What makes Russia a lot of money? ›
The economy of Russia has gradually transformed from a planned economy into a mixed market-oriented economy. It has enormous natural resources, particularly oil and natural gas. It is the world's 11th-largest economy by nominal GDP, and 6th-largest by purchasing power parity (PPP).
What is Russia's greatest source of wealth? ›
What are the main parts of Russia's economy? Russia's gross domestic product (GDP) is mainly composed of three sectors: agriculture, industry, and service. Agriculture contributes about 5.6% to GDP, followed by industry and service, which contribute 26.6% and 67.8%, respectively.
How much did the US give Russia in ww2? ›
From 1941 through 1945, the U.S. sent $11.3 billion, or $180 billion in 2016 dollars, in goods and services to the Soviets.
Russia was the eleventh largest economy in the world in 2021, with its gross domestic product measured at 1.78 trillion U.S. dollars. In the global ranking by nominal GDP, Russia was positioned between South Korea and Australia.
What country spent the most money on the war? ›
The Largest Military Budgets in 2022
| Rank | Country | % of World Military Spend |
|---|
| 1 | 🇺🇸 U.S. | 39.0% |
| 2 | 🇨🇳 China | 13.0% |
| 3 | 🇷🇺 Russia | 3.9% |
| 4 | 🇮🇳 India | 3.6% |
6 more rows12 Jul 2023
Some of the most common methods include investing in Russian stocks and ETFs (exchange traded funds). With Admirals, you can invest in a variety of different Russian companies that are listed on exchanges in the United States, the UK and elsewhere. This includes companies such as Gazprom, Lukoil and Yandex NV.
Why can't i sell Russian stock? ›
Owned Stocks
Shares of stock issued in Russia by Russian companies are traded via depository receipts (DRs) and the Russian government no longer allows them to be traded this way in the United States.
Who is investing in Russia? ›
Investments
| Announced Date | Investor Name | Funding Round |
|---|
| Aug 11, 2023 | Moscow Seed Fund | Debt Financing - Exodrive |
| Aug 3, 2023 | Genius Group | Pre Seed Round - Gooroo |
| Jul 31, 2023 | Korea Shipbuilding & Offshore Engineering | Corporate Round - STX Heavy Industries |
| Jul 31, 2023 | Digital Finance International | Venture Round - RupeeRedee Loan |
1 more rowMoscow's actions have deprived many foreign investors of the ability to trade in Russian securities, including depositary receipts. Investors are worried about future copycat actions by other governments who might look to reduce foreign influence over their leading companies.
Why is Russia good for business? ›
Russia has established 28 'special economic zones' to encourage investment from foreign companies, they provide tax preferences, reduced administrative barriers, infrastructure for business development, simplified migration regime and access to the qualified personnel resources.
Why is Russia so important to the global economy? ›
In 2021, Russia ranked 13th among world goods exporters and 22nd among importers. According to Russian official sources, its goods exports totaled $492 billion in 2021, up 46% from 2020 (not adjusting for inflation) (Figure 2). Minerals, including oil and gas, accounted for almost 45% of these exports.
Why is Russia important to the economy? ›
Russia is among the world's leading producers of oil, extracting about one-fifth of the global total. It also is responsible for more than one-fourth of the world's total natural gas output.
