Risk of Investing Money in Russia
Over the last several years, Russia has presented many investors with the potential to see substantial returns in their portfolios. According to the World Bank, since 1998, the Russian economy has seen an annual average growth rate of 6.7 percent, while the Russian stock market delivered a staggering 900 percent return between 1999 and 2007. For many investors, these kinds of returns seem tempting, however, like all forms of investing, Russia presents its own types of risks. Understanding these risks will help you decide if investing in Russia is right for you.
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Currency Risks
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Depending on how strong or weak the rubel is against the U.S. dollar can affect the overall value of your investments. During times when the dollar is strong, you will see the value of your investments in Russia fall. Conversely, when the rubel is strong against the dollar the value of your investments will increase. In many cases, the fluctuations of currencies can create large amounts of volatility in your portfolio.
Regulatory Risk
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When you invest in Russia, there is the possibility that you could see regulatory risk. This is when the government could take an action that would directly affect your investment, such as nationalizing an industry or company.
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Lack of Openness
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Whenever a company lists its stock on the American stock exchanges, it is required to be in compliance with the Securities and Exchange Act of 1934. This requires all companies to submit their financial information to the Securities and Exchange Commission on a regular basis, so that investors can see for themselves the overall financial situation of a company. Russia does not have the same requirements.
Economic Risks
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Russia is a rapidly developing country; this means that there are periods of strong growth followed by times when the economy will be slower than the rest of the world's. These swings in the economy can affect the country's ability to pay back its debts, which could have a direct impact on your investments.
Different Regulations
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When you are investing in Russia, your broker might not be able to execute the trade in the country and how trades are reported could mean that you could have to wait longer to receive your execution price. Also, your account may not be protected if the brokerage firm goes bankrupt.
Information is Limited
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In many cases, finding out any kind of news on the different companies can be challenging, where you might not know what is happening with the company for several weeks. This could mean that you could lose money because of the lack of available news.
Conclusion
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Investing in Russia offers many opportunities, but careful consideration of the different risks will help you decide if investing in Russia is right for you.
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