I should also point out that, while Russia is a complicated jurisdiction politically, it’s nevertheless managed with enviable monetary and fiscal discipline. Its national debt is below 20% of its gross domestic product (GDP), which is almost unbelievable in today’s environment of nonstop out-of-control spending and money printing. As of right now, U.S. national debt stands at over $30 trillion, or about 125% of GDP.
And with the U.S. yet to raise rates to control inflation, the Bank of Russia is in the middle of a tightening cycle that began in April of last year. On Friday of last week, the bank raised its key interest rate to 9.5%, an increase of 100 basis points. As a result, the real 10-year government bond yield is above 1%, making it one of the very few countries to offer positive yields even after adjusting for inflation. 
An Invasion Is Possible But Doubtful
I want to reiterate my point from earlier about the (un)likelihood of invasion. Putin is many things, but he’s no dummy. Military action would be incredibly costly for Moscow, not just monetarily but politically.
For one, it’s likely Russia would be shut out of SWIFT (Society for Worldwide Interbank Financial Telecommunication), the international payment and money transferring network. Although other payment systems now exist, from Visa to Mastercard to Bitcoin, most cross-border commerce between countries is still conducted via SWIFT. This means a shut-out could be devastating for Russia, which depends heavily on energy exports.
That’s just one of many pressure points on the table, another being Nord Stream 2. The just-completed Russia-owned pipeline to Germany has yet to transport any gas, and it could very well stay that way if Putin invades.
The president knows all of this, of course. Although anything could happen, I fully expect cooler heads to prevail, which is good news for investors who were waiting for such a time to get exposure to the Russian market.
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Originally published by U.S. Global Investors on February 17, 2022.
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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 12/31/2021: Lukoil PJSC, Gazprom PJSC, Magnit PLSC, MMC Norilsk Nickel PJSC, Magnitogorsk Iron & Steel Work, Severstal PAO, Novolipetsk Steel PJSC, Evraz PLC.
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