Renowned investor Jim Rogers has a contrarian message for U.S. investors on the prowl for opportunities in the wake of the Trump presidency: Buy Russia. In his view, with U.S. equity indices realizing all-time highs, now is the time to look at undervalued markets around the world.
Rogers decades ago co-founded the Quantum Fund with George Soros.
Although Rogers acknowledges that the Trump effect has had "an impressive effect on the U.S. stock market," he says "many stocks are now expensive." Tax cuts, infrastructure spending and corporate cash repatriation should remain positive for U.S. markets over the next couple of years, but Rogers sees better opportunities internationally.
According to the investment guru, his bullish stance on Russia is based on his view that relations between the United States and Russia will improve when Donald J. Trump takes office as the 45th president of the United States, providing a boost to its depressed economy. There is also the chance that sanctions imposed on Russia over its role in the conflict in the Ukraine may be eased.
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Rogers first visited Russia in 1966 and was pessimistic for almost five decades. "But something has happened in the Kremlin. They understand that they cannot be the same old czarist and communist plutocrats that they were," he said. Russia also has vast natural resources — it's the world's largest petroleum producer — and is not a significant debtor nation despite the fact its been mired in recession due to the oil price collapse and international sanctions. It has the 12th-largest economy, valued at $1.3 trillion, the IMF reports.
Rogers is long the ruble and Russian markets. "I was bullish on Russia before Trump came along with his positive comments," he said, noting that he has been investing heavily there over the last few years. "Trump is going to be friendly with Russia. That's an enormous change. You're going to see the rest of the world remove sanctions."
In contrast, Rogers is not optimistic about investment prospects in China and is in a holding pattern, neither shorting nor buying assets.
He says Trump's hawkish stance on China will stall the country's economic growth engine. The president-elect has threatened to slap huge tariffs on Chinese imports, which could trigger a trade war. "America and China could really boom together, [but] Trump seems to have it in for China. I don't know why, since he and his family do huge amounts of business in China," Rogers said.
On Jan. 2, Mr. Trump tweeted that "China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won't help with North Korea. Nice!"
Within days China's state news agency, Xinhua, retorted with a commentary, noting that such tweets are "undesirable."
"Some guys that Trump has appointed do understand how the world works. On the other hand, he's got some people who are vehement that they need to attack China," Rogers said.
In December, Trump selected Peter Navarro, author of "Death by China: Confronting the Dragon," to head the National Trade Council, a new White House office. "Navarro has made a career out of attacking China. And Trump's going to obviously listen to him, at least publicly. And that can cause strife for a while," Rogers said.
In September 2016, Navarro co-authored a campaign white paper with Wilbur Ross, nominee for U.S. Commerce Secretary. In it, they wrote that China's 2001 WTO inclusion "opened America's markets to a flood of illegally subsidized Chinese imports, thereby creating massive and chronic trade deficits. China's accession to the WTO also rapidly accelerated the offshoring of America's factories. … China is hardly the only cheater in the world; it's just the biggest."
In an attempt to improve U.S. business competitiveness on the global stage, Trump has spoken of a 45 percent tariff on Chinese imports.
"If he does that, you better sell everything you have, because it will cause very, very serious problems," Rogers said. "When you have trade wars, you have economic upheaval, turmoil, recessions [and] bankruptcy."
Through the first 10 months of 2016, the United States exported $92 billion worth of goods to China and imported $381 billion worth.
Because of this risk, Rogers said, "the U.S. dollar is going to continue going up against nearly every currency in the world."
A trade war would have ripple effects. According to Rogers, China could reduce its $1.12 trillion of U.S. debt holdings by allowing the bonds to roll off as they mature. Additionally, it could institute its own tariffs on U.S. imports, hurting industries such as agriculture.
In fiscal year 2016, the United States had an agricultural trade surplus with Greater China, exporting $26 billion worth of goods while importing only $4 billion. Importing less from the United States would bolster the agricultural industries in both China and Russia.
Owing to these potential policy changes, Rogers is cautious. "If Mr. Trump does what he says, Chinese equities certainly are not going to go up. No equities are going to go up if he does what he says he's going to do. So I'm sitting and watching," he said.
He is bullish on select sectors in China, however, including those that improve the environment and peoples' lives. "The Chinese are now spending huge amounts of money cleaning up [the environment]. … Healthcare in China's a disaster. They're spending a lot of money to get better and more health care." As the country continues to develop, "parts of the Chinese economy are going to do extremely well no matter what happens to the world," he said.
The One Belt, One Road initiative valued at over $4 trillion is also creating investing opportunities. "It's rare in history that geography changes," Rogers said. "The Chinese have this gigantic project, which is going to change world geography as we know it. Somebody's going to make a fortune." Rogers said railroad suppliers will prosper, and correspondingly, he recently opened a trading account in Kazakhstan, which he said will benefit.
Rogers, who has lived in Singapore for nine years, said, "I don't think many people, if any in Washington, understand what's happening [in Asia]. … They don't understand that Japan is in decline. They don't understand that North and South Korea will be merging soon. They don't understand the rise of China." And as the United States' role in the region is reduced, as Trump has asserted, China's influence will rise.
Although Rogers is bearish on many asset classes over the short term, he is bullish on Asia over the next 10 or 20 years.
"If you look at the largest creditor nations in the world, they're all in Asia: Hong Kong, Taiwan, Korea, Japan, Singapore, even Russia. This is where the assets are. This is where the demographics are positive. This is where the energy is," he said.
— By Joshua Bateman, special to CNBC.com