Biden versus Putin – and the winner is…?

Sunday, 20. June 2021

The battle for a new world order goes into the next round –

by Andreas Männicke, Managing Director of ESI East Stock Informationsdienste GmbH (www.eaststock.de) and publisher of EAST STOCK TRENDS.

+++First signs of easing, but no more+++USA/China conflict carries more weight+++FED announces exit from ultra-loose monetary policy +++Is a cyber crisis coming after the Corona crisis? +++World stock markets unsettled by FED after new all-time high+++Inflation increasingly an issue+++Eastern European stock markets as outperformers+++Exotic stock markets from Eastern Europe are coming+++Moscow Stock Exchange already +25%+++

On 16 June, US President Joe Biden and Russian President Vladimir Putin met for the first time on neutral ground in Geneva. The talks were eagerly awaited and were also urgently needed, because the relationship between the USA and Russia – after all, two highly upgraded nuclear superpowers – has never been as bad as it is now in the post-war period. Even before the talks, Biden had pointed out “red lines” that must not be crossed, such as a military intervention by Russia in Ukraine or the death of the opposition lawyer Nawalny in Russian prison.

Many world stock markets are now close to all-time highs due to the flood of money from central banks, such as the German DAX and the American S&P 500 index. But 8 stock exchanges from Eastern Europe were even able to outperform the DAX and the S&P index this year – led by the stock exchange from Kazakhstan with a plus of 41 percent. But also the Russian RDX index has already risen by 25 percent in euros due to strongly increased oil prices. Andres Männicke also gives his assessments of future opportunities in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 187 at www.youtube.com .

Better to let words speak than weapons

At the G7 summit, US President Joe Biden had described both China and Russia as enemies and new threats to NATO. He has also tried to get Europe on his side in the fight against China and Russia, with Europe also wanting to expand economic trade with China and Russia.

One thing is now clear: Biden and Putin want to keep talking, which is good. It is hard to say who emerged victorious at the 16 June meeting of Biden and Putin in Geneva. Both sides brought up their differences and disagreements in a friendly, but not amicable tone. Whether this will immediately lead to an easing of tensions is doubtful. At least ambassadors are allowed to resume their work, which is to be welcomed. It is now very important that the thread of conversation does not drift. This is particularly important if there are proxy wars or new ones could arise, as in Syria and Ukraine, which have not yet been pacified either. Because a proxy war could also turn into a world war of the major military powers at some point, which must be avoided at all costs.

A new world order is emerging, but who will call the shots in the future?

The discussion with Putin and Biden was also about a new world order, where China and Russia want to have a say alongside the USA. The common goal of China and Russia is to dismantle the USA’s world dominance and to have their own say. In purely economic terms, China will succeed better than Russia. In the Arctic there are new raw material potentials that are of great interest to both Russia and the USA. It would be fatal for the whole world if attempts were made to resolve these conflicts of interest militarily, as has been the case in many proxy wars, such as in Syria and Ukraine.

Russia is well prepared for emerging crises, but so is the USA?

Even the attempt to isolate Russia through continued sanctions, where the thumbscrews are being tightened more and more (similar to Iran), can at some point lead to a military confrontation that is dangerous for the whole world. The USA, but also China and Russia have rearmed enormously and arms exports continue to be an important source of income, also for Germany. At the same time, debt has also increased enormously worldwide as a result of the Corona crisis. Whether the global debt problem can only be solved through more growth is questionable. Too high permanent inflation can quickly become an enormous problem for all capital markets.

Here, however, Russia is much less indebted and even better hedged than the USA, because Russia is constantly in crisis mode and also better prepares for emerging crises. As a buffer, Russia has a prosperity fund with a volume of 160 billion US dollars and currency reserves of over 600 billion US dollars, and this with current account surpluses and a debt of only 20 per cent of GNP, whereas the USA is already 125 per cent of GNP in debt.

Will a cyber crisis or blackout follow the corona crisis?

Digitalisation is important for all countries in the world, including Russia, although the digital world is clearly dominated by the large corporations of the USA. But it also creates new potential for vulnerability if cyberattacks get out of hand or if there are local black outs. This is currently being practised virtually on the internet under the direction of Sberbank with the simulation game of the World Economic Forum Polygon. Will there be not only a climate crisis after the Corona crisis, but also a cyber crisis, and if so, by whom will it be controlled or initiated?  There is plenty of scope for new conspiracy theories here.

The thread of conversation between Biden and Putin must not be broken

It was an eye-to-eye conversation between Biden and Putin and this is also very important for Putin, who can thus return to the world stage. Biden’s charges, which also serve to justify the sanctions, are numerous, such as Russia’s allegedly aggressive relationship in Ukraine and the cyberattacks by Russians on American companies and the alleged interference in the US election campaign. In Putin’s view, however, none of this has been proven so far and therefore the constant sanctions are not appropriate. However, it is hardly likely that the US sanctions will be ended quickly.

China remains the USA’s “main enemy”, but then comes Russia in a moment

The economically more important competitor for the US in the struggle for a new world order is certainly China, although Biden also does not want Russia to become more economically and militarily tied to China in the future. However, Biden also wants to avoid Russia becoming a strategic partner of Germany again, as was the case with former German Chancellor Gerhard Schröder. Biden will not lift the sanctions against the construction of the Northern Pipeline, but probably in agreement with Angela Merkel he will not impose new sanctions against European companies, so that it can be assumed that the Northern Pipeline built by Gazprom will be completed by the end of the year. However, there are still strong opponents in the EU against the construction of the Northern Pipeline, especially among Green politicians.

Corona crisis continues to preoccupy both the US and Russia with different levels of vaccination preparedness

The Corona crisis continues to preoccupy both countries, the USA and Russia, although Russia did not have as high a drop in the last one as the USA. Russia has not yet had a second lockdown, but Moscow’s mayor has now ordered a free working week in Moscow because the number of people infected with corona has jumped again to 6000 a day. In contrast to the USA, the willingness to vaccinate in Russia remains very low. Only 12 percent of the population in Russia have been vaccinated with Sputnik V so far. In Germany, 30 percent have already been vaccinated twice and 50 percent once. In the USA, 311 million people have already been vaccinated, more than in the EU with just over 300 million people. In the USA, 58 percent of the population have been vaccinated at least once. Now, however, the willingness to vaccinate is waning in the USA as well.

FED gives first signals on ending ultra-loose monetary policy

In addition to the eagerly awaited talks with Putin and Biden, the latest FED meeting was also significant. The FED announced for the first time that it will raise interest rates with 2 interest rate steps already in 2023 due to the good economy. In addition, it was discussed whether and when the purchase of securities will continue to the same extent as before. The Bundesbank has long been in favour of ending the ECB’s securities-buying programme with a volume of 120 billion euros as soon as possible.

However, as soon as the central banks’ drug policy is ended and less liquidity is supplied to the market, it will also be tight for the stock and commodity markets in the future.  The so-called “tapering” could also end the equity bull market. But the level of the inflation rate is also significant for the future of the stock and bond markets.

The FED sees inflation only as a temporary problem that will disappear later. Commodity prices had risen sharply in 1 year and wages will also rise again now, so inflationary pressure will remain for the time being.  The stock markets already corrected strongly last Friday because of the inflationary dangers and interest rate fears. For example, the German stock index DAX fell by 1.78 per cent to 1.78 per cent on Friday and the American stock index Dow Jones Industriel Index (DJI) fell by 1.58 per cent to 33,290 index points.  This means that since the beginning of the year the DAX has “only” risen by 12.45 per cent and the DJI by 10.14 per cent.

8 Eastern European stock markets can clearly outperform the DAX again!

On the other hand, some stock markets from Eastern Europe, which had already clearly outperformed the DAX and DJI, did very well. The stock markets in Kazakhstan, Ukraine, Russia, Bosnia and Poland rose slightly on Friday, while the western world stock markets fell sharply. Stock markets from Eastern Europe were able to clearly outperform the DAX and DJI. The KTX index for Kazakhstan rose by 41.0 percent to 564 index points by 19 June, the UTX index for Ukraine by 30.89 percent to 160 index points, the RDX index for Russia by 27 percent to 1797 index points, the BTX index for Bulgaria by 26.5 percent to 1622 index points, the CTX index for the Czech Republic by 21.25 percent to 1475 index points, the ROTX index for Romania by 19.44 percent to 14. 314 index points, the BATX index for Bosnia by 17.10 per cent to 862 index points and the HTX index for Hungary by 19.96 per cent to 4402 index points, all on a euro basis, mind you, and not in local currency. But the Baltic stock exchanges from Estonia, Latvia and Lithuania have also been among the top performers in the world for years and are still hardly noticed.  In Eastern Europe, only the CROX index for Croatia, with a plus of 11.57 percent, and the PTX index for Poland, with a plus of 9.64 percent to 1031 index points, fared somewhat worse than the DAX.

Conclusion: You can always clearly outperform with shares from Eastern Europe; only no bank advisor and only a few investment advisors will tell you that. Even in the media, the stock markets from Eastern Europe are still treated very stepmotherly.

First inform, then invest

Inform yourself now also in detail about the background and the development of the Ukraine/Russia crisis but also the future recovery potential of the undervalued shares from Eastern Europe. There are also new opportunities in the Baltics, Romania and Ukraine, with the respective stock indices all up in 2019.  For example, some Ukrainian agricultural stocks have already more than doubled in price since 2016, and in 2018 the PFTS index was already up over 70 per cent again. Kazakhstan stocks were among the top performers in the world in 2017 (+56 per cent), but not in 2018 and not in 2019, but again in 2020/21.

In 2018, 10 stock markets from Eastern Europe were already among the best-performing stock markets in the world, all of which clearly outperformed the DAX and also the US stock market. In 2019, the Moscow Stock Exchange was once again the clear outperformer among all global stock markets, with a plus of over 46 percent in euro terms. But also the Bucharest Stock Exchange (Romania) already rose by over 32 percent in 2019. The stock markets in Southeast Europe and also in the Baltic countries remained very stable in the plus (Croatia +13 percent). Last year, 6 stock exchanges from Eastern Europe were among the 30 best-performing stock markets in the world and this year even 12 stock exchanges from Eastern Europe until the end of May 2021. After the Corona crash, it is still worthwhile to look beyond the horizon to Eastern Europe.

Order now a trial subscription (3 issues by e-mail for only 15 €) of the monthly stock exchange letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special as well as with a lot of background information and new investment suggestions such as the “Stock of the Month” and lucrative certificates at www.eaststock.de, there under Stock Exchange Letter.

The last EST was published on 31 May 2021, and the old EST model portfolios have already made strong gains in 2019. The “stock of the month” from September 2018 Polyus Gold already rose by more than 100 per cent and the gold stock Petropavlovsk even by almost 400 per cent at the high. At the end of 2018, a new “gold” sample portfolio was opened in EST, already up 137 per cent, and the new December 2019 portfolio of turnaround candidates rose 51 per cent.  Copper producer KGHM Polska Miedz was already up 112 percent since December 2019, and the December 2020 “stock of the month” TCR Group – a fast-growing fintech bank from Russia – was already up over 140 percent in 6 months. In Kazakhstan, the new IPO Kaspi.kz, a fast-growing fintech company from Kazakhstan, made a splash and was featured in detail in the penultimate EST. The January 2021 “Stocks of the Month”, iron ore companies Ferrexpo and Black Iron from Ukraine already gained 56 to 58 per cent since the beginning of the year.  The “Share of the Month March” Gazprom already rose by over 20 percent in 2 months and over 70 percent in 1 year. So there are always new opportunities on the Eastern stock exchanges! The motto therefore remains: Go East!

Interview notes: The last TV interview in NTV/Telebörse was on 15 April 2021 together with Andreas Männicke and Kemal Bagci from BNP Paribas and the last radio interview was on 24.521 in Börsen Radio Networks.  The next interview will be in July on Börsen Radio Networks. The last interview for Investainment on www.youtube.com with Rainer Hahn and Andreas Männicke was on 18 June 2021. You can download the interviews now at www.eaststock.de, there under the heading “Interviews”, as well as the EastStockTV video of the same name, episode 187 from 20 June 2021. By the way: have you already subscribed to the YouTube channel EastStockTV?

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The stock exchanges of Central and Eastern Europe have been among the top performers among the world’s stock exchanges since 1998. In recent years in particular, many CEE stock exchanges have performed far better than the established Western stock exchanges. In 2019, for example, the Moscow Stock Exchange not only clearly outperformed the DAX and DJI, but also ranked among the 30 best-performing stock exchanges in the world.

Many investors have so far criminally neglected the CEE stock exchanges. Yet the selection of promising stocks is growing. Eastern Europe still has its future ahead of it.

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