Ben Aris in Moscow -
Legendary investor Jim Rogers calls the US government foolish, arguing that the only long-lasting effect which Washington's confrontation with Moscow over the fate of Ukraine will have is to drive Russia into the arms of the Chinese – something that is not in the US' long-term interests.
Best known for being the other half of George Soros' Quantum Fund that forced the Bank of England out of the European Exchange Rate Mechanism in the 1980s and made the two men super-rich, Rogers – who was hired by the Russian investment bank VTB Capital last year as an advisor – said he started to invest in Russia this March, following Russia's annexation of Crimea. Despite the fraught political situation and fallout from the civil war in Ukraine, he says he is still in the money.
"Two years ago Russia was like the backend of the world and no one was paying attention. Now the US has shot itself in the foot," says Rogers in an exclusive interview with bne from his home in Singapore.
"The conflict in Ukraine has certainly been a setback, but it's not the end of the world. [US oil major] Exxon just announced that it's found oil in the North [Arctic] and [even if] Exxon closes this camp and goes home, then the oil is still there and it will be exploited by someone. This is a blip and no more," Rogers says confidently.
Commentators have warned that the West's attempts to isolate Russia will set the country's development back and the economy, according to the World Bank's latest economic forecast released in September, is already close to stagnation. However, Rogers takes a longer-term view. Cut off from Western finance and technology will slow Russia's development, but that does not mean it will be isolated. "The upside of the US actions will be to force Asia and Russia together. It will be exploited and China and Russia are welcoming each other with open arms. In the long run this new relationship will hurt the West more than it hurts Russia," says Rogers, who speaks with just a slight hint of an accent from Alabama where he grew up.
Other places to go
The latest round of sanctions imposed on Russia in September have also more-or-less cut the Russian government and the country's leading companies off from the international capital markets in London and New York, but that problem too can be overcome, says Rogers. "Hong Kong and Singapore are not New York and London, but they are both growing rapidly and there are gigantic pools of capital in Asia," says Rogers. "The problems in Eastern Europe will help the Asian market to develop and catch up with the West. There is a lot of money in Asia and expertise."
Behind the West's actions lie the assumption that cutting Russia off from Western money and technology means it has nowhere else to go. But that is not true, argues Rogers. "I'm stumped when people call South Korea an emerging market. Singapore is also an emerging market, but yet it is one of the richest countries in the world on a per-capita basis," says Rogers. "Emerging markets are only those countries that you read about in the Financial Times or the New York Times."
It is these assumptions that have led policy astray in the West and Rogers thinks the US will pay a price, while investors with the courage to continue to invest in Russia and the other emerging markets will benefit from these misperceptions.
Rogers is quite outspoken, blaming "bureaucrats" for mismanaging US foreign policy. "The USA is acting foolishly and accelerating the change in the geopolitics of the world,” says Rogers, recalling the well-known leaked recording with US Assistant Secretary of State for European and Eurasian Affairs Victoria Nuland telling the US ambassador in Ukraine, "fuck the EU, we want to bring down this government.”
Rogers complains that the US was encouraging people to bring down an elected government. "[President Viktor] Yanukovych may have been a horrible guy, but he was elected. Presidents George Bush and Barack Obama may also be horrible, but they were also elected. However, the US set out to destroy a legitimately elected government and it's backfired."
Buy on sound of cannons
Rogers is nothing if not a contrarian. Having made his fortune by betting against a central bank, he is playing that role again with his Russian investments. "Russia is perhaps the most hated market in the world - certainly it's in the bottom five. But the reality on the ground has started to change. [President Vladimir] Putin is also a different man to do what he was in 2000 when he was elected," says Rogers, who says he has been following the country's path since he visited the Soviet Union as a student in 1966.
Rogers began investing in Russia after the market collapsed in March after the annexation by Russia of Ukraine's Crimean peninsula. "You shouldn't listen to me as I'm the world's worst market timer, but I am surprised and delighted that the market today is still above his levels in March," says Rogers.
And he bought again in May, and says he is looking to buy more, although his Russian portfolio still represents a tiny part of his overall investments.
Amongst the companies that Rogers has invested into is the Moscow Exchange that was floated in February 2013 following the merger of Russia's two biggest stock markets, the RTS and Micex. "Putin has committed himself to making Moscow an international financial centre. Many may find that laughable, but it doesn't matter if it works; Russia will spend huge amounts of money to try and make it work," says Rogers.
Other companies he's invested in include Aeroflot and fertiliser producer Phosagro, of which he was recently appointed a director. "I'm wildly bullish about agriculture and definitely bullish about Phosagro," says Rogers. "Phosagro is an opportunity in the agricultural sphere, because agriculture is only going to increase in demand. It's a very well-placed company and even if sanctions are imposed against it, it is still has the opportunity to sell to Asia and other countries."
With peace now possible in Ukraine, Rogers thinks that once investors switch from following current affairs to looking to the future again, investment will return. "There is an old adage: invest when there is blood on the streets and usually it is correct. Investors have very short-term memories – it’s a fact. Who remembers Tiananmen Square in the 1980s? But today we are pouring trillions of dollars into the Chinese economy," he says. "We need to engage in Russia – open our hearts and minds to Russia – as engagement is always better than isolation."
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