How Far East Do You Go?

The morning-after-the-night-before mood is haunting the European bourses from the open Wednesday. Investors could be forgiven for being nervous, the Chinese bourses sold off on news the government is tripling the tax charged on share transactions.

When it comes to maintaining economic momentum in the world's most populous nation there will be no radical adjustments. Beijing wants to cool the gold-rush mentality surrounding the stock market, but the overnight hike in the share tax is piecemeal rather than revolutionary. In fact, it merely restores a charge the government had previously reduced when they were trying to encourage investors back into the stock market.

This is a version of the parable about boiling frogs. You don't put a frog into boiling water because it will immediately jump out. Instead you let it luxuriate in the water before slowly raising the temperature. Ultimately Beijing doesn't want to kill its frog (the Chinese investor), but officials of any description are notoriously bad at managing anything as sensitive as investor sentiment. Inevitably there will be a degree of overkill when the tightening measures take the momentum out of these markets.

My guest host this morning, Jochen Wermuth, is a specialist on the Russian rather than the Chinese markets. He suggests global investors take a closer look at the Russian opportunity before heading further East. He argues Russia offers an attractive alternative -- in the event of a major correction in Chinese markets -- with the Russian economy more sensitive to the U.S. than to China per se. He believes the recent downturn in the Russian market provides a better entry point for what will be a long-term good news investment.

Further useful advice on the Russian market offered by Zina Psiola, a fund manager at ClaridenLeu Bank.She picked out 3 stocks for our attention:


Novolipetsk Steel


She also suggested a look at ruble-denominated euro-clearable bonds of quasi-Russian sovereign.

Feedback welcome - here.