StockBeat: The best market refuge european recently has been…Russia

as world growth slows and the global economy is on the verge of triggering a new cold war based on trade, it is quite natural for investors to think about the shelters. They might be surprised to find that the shelter is the safest in the european equity markets this year has been… Russia.

The RTS index is up 17.8% this year, the major clue the most powerful in Europe, ahead of the German DAX with 14.7% and the SMI of switzerland with a 14.0% (the RTS index is an index primarily denominated in dollars, so that it is not as if these gains had been achieved by the devaluation of the ruble). Even more surprising, it is also the best performance over the three years, with an increase of 41% (the Euro Stoxx 600 is up 12% over the same period).

The RTS has even managed to stay in the green Monday, a day when the shares of Shanghai to Wall Street have all fallen more or less synchronized to the prospect of a trade war.

As a result, it under performs Tuesday – like many shelters in the days of higher – earning only 0.2% at mid-day in Europe, against a rise of 0.3% for the Euro Soxx 600 and a 0.5% rise for the FTSE. The German Dax rose by 0.6%.

There is a simple explanation to this and – unfortunately for the investors, it suggests that outperformance may be difficult to maintain. The Russian stock market, like its economy in general, is fuelled by the oil price, in spite of promises without end of the 19 last years of president Vladimir Putin to diversify his economy. Past experience suggests that it will be difficult to keep up if a trade war will slow down the global economy and crush demand for oil.

The oil and gas groups such as Gazprom (MCX: GAZP), Rosneft (MCX: ROSN) and Lukoil (MCX: LKOH), dominate the index, and as long as they can avoid acts of destruction of value flagrant, they can only earn money. Lukoil, the most powerful of the three, has posted a net profit of 48% last year, to reach over 9 billion dollars.

As long as high oil prices support the ruble, it will also support the companies whose revenues are in rubles, including Sberbank (MCX: SBER), the largest European bank and the Internet company Yandex (NASDAQ: YNDX).

Oil prices are on the rise at this time because Russia – theoretically – reduces the production in coordination with Saudi Arabia and OPEC in order to maintain the equilibrium of the market. The risk of conflict between the United States and Iran also helps.

However, Russia is clearly less tied to the agreement that Saudi Arabia. Its minister of Energy, Alexander Novak, has departed this weekend from the position of saudi arabia, according to which a consensus was reached in favour of the extension of the agreement, which expires in June. Igor Sechin, CEO of Rosneft, is widely seen as the most powerful man in Russia after president Vladimir Putin said that the whole strategy played in favor of the United States by giving a larger share of the world oil market.

Those who have retained shares in Russian during the difficult years, since the annexation of Crimea, have well deserved this time. To the extend, there will always be a balancing act supreme on the part of those who control the taps of oil and gas in the country.

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