Over the past few months there has been much to do about the potential relationship between incoming President elect Donald Trump, and Russian President Vladimir Putin.  Many times the incoming president has stated, “You know, wouldn’t it be a great thing if we could actually get along with Russia? Wouldn’t that be a good thing. That would be a good thing.”  During a recent press conference President Putin commented on Mr. Trump stating, “[Donald Trump is] a really brilliant and talented person, without any doubt.”  President Putin went further to state, “He says he wants to move on to a new, more substantial relationship, a deeper relationship with Russia, how can we not welcome that?” he said. “Of course we welcome that.”

While there is still a bit of frost from the cold war, this thawing out between the two superpowers carries with it some interesting investment potential.  Currently, the U.S. has several sanctions against Russia because of the 2014 annexation of Crimea from Ukraine and involvement in the Syrian civil war.  Further, President Obama has recently added to those sanctions due to potential election interference.  

These sanctions will come under review with the new administration.  In his confirmation hearing, Secretary of State nomine Rex Tillerson was asked about the sanctions, relationship, and potential issues he may face regarding Russia.  During the nine-hour Senate confirmation hearing, Mr. Tillerson made a few interesting comments; he refused to call President Putin a war criminal, and he left the door open to potential changes in the current sanctions.  Specifically he stated, “I would leave things in the status quo so we are able to convey this can go either way.”  He commented that he wanted an "open and frank" dialogue with his counterparts in Moscow to better understand its intentions.  In contrast to the current administration, Mr. Tillerson commented that he would refuse to support President Obama’s newest sanctions against Russia.  

So how does this information impact investing in Russia?

There are a few factors at play here with the current sanctions as the biggest hurdle, but given the relationship between the current Russian president, and incoming U.S. president, these sanctions have a very good chance to be amended. If and when these sanctions are loosened it will significantly benefit the Russian economy.  

Russia is one of the largest oil and natural gas producers in the world, and the recent agreement with OPEC and non-OPEC members to cut production has caused oil prices to stabilize.  The stabilization of oil prices has also help stabilize the ruble.  With the stabilization of oil and the Russian currency, the country will then be able to grow economically.  Therefore, it is in Russia’s best interest to have a friendly relationship with the new administration.

We have looked into the Russian ADR stocks, and ETFs related to Russia to pick the ones that are best positioned to take advantage of the budding relationship between the U.S. and Russia.  We have identified two major oil & gas producers, two telecommunication companies, and two ETFs that encapsulate several sectors within the Russian economy.  

Oil & Gas Producers

Lukoil (LUKOY Quick QuoteLUKOY - Free Report) is an integrated oil and gas company. The company's operating business segments consists of Exploration and Production, Refining, Marketing and Distribution, Chemicals and Power generation. Exploration and Production segment includes exploration, development and production operations relating to crude oil and gas.

It operates primarily in Russia, eastern bloc countries, the Middle East, Northern and Western Africa, Norway and Romania. Refining, Marketing and Distribution segment provides refining and transport operations, marketing and trading of crude oil, natural gas and refined products. Chemicals segment includes processing and trading of petrochemical products. Power generation segment includes generation, transportation and sales of electricity, heat and related services. LUKOIL PJSC is based in Moscow, the Russian Federation.

Gazprom Neft is the world's largest gas company basically focused on geological exploration, production, transmission, storage, processing and marketing of gas and other hydrocarbons. Gazprom's mission is to provide effective and well-balanced gas supply to Russian customers and to safely implement long-term gas export contracts. Gazprom's strategy is to acquire the leading position among the global energy companies by entering new markets, diversifying core business activities and ensuring reliable supplies.

Mobile/Telecommunications

Mobile Telesystems provides telecommunication services in Russia and the Commonwealth of Independent States. The company offers voice and data transmission, Internet access, pay TV, and various value added services through wireless and fixed lines, as well as sells equipment, accessories, and handsets. It also provides system integration services and complex IT solutions. The company serves approximately 100 million mobile subscribers. It also operates 13 retail shops in Perm, Kizel, Aleksandrovsk, Berezniki, Vereshchagino, and Lysva. The company was founded in 1993 and is based in Moscow, the Russian Federation.

VimpelCom Ltd. is one of the world's largest integrated telecommunications services operators. It offers a wide range of wireless, fixed, and broadband services in Russia, eastern bloc countries, Asia, India, Algeria, Pakistan, parts of Africa, Italy and Canada. VimpelCom provides services under the Beeline, Kyivstar, djuice, Wind, Infostrada Mobilink, Leo, Banglalink, Telecel, and Djezzy brands.

ETFs

Van Eck Vectors Russia ETF replicates as closely as possible, before fees and expenses, the price and yield performance of MVIS Russia Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund's benchmark index. The index includes securities, which may include depositary receipts, of Russian companies. A company is generally considered to be a Russian company if it is incorporated in Russia or is incorporated outside of Russia but generates at least 50% of its revenues (or, in certain circumstances, has at least 50% of its assets) in Russia.

Van Eck Vectors Russia Small-Cap ETF The VanEck Vectors Russia Small-Cap ETF replicates as closely as possible, before fees and expenses, the price and yield performance of MVIS Russia Small-Cap Index.  The fund normally invests at least 80% of its total assets in securities that comprise the fund's benchmark index. The index includes securities of Russian small- and medium-capitalization companies. It will normally invest at least 80% of its total assets in securities of small-capitalization Russian companies.

Bottom Line

With both President Putin, and incoming President Trump expressing admiration, and friendship to each other, investing in Russia has become much more intriguing.  The above companies have all become attractive investment opportunities, and will benefit from a positive and peaceful relationship between the two countries.

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