We wait for a peace deal that may not come but the Market Vectors Russian ETF (RSX, quote) continues to move higher as the Ruble is rallying under higher oil and at least the body language of all sides talking towards a positive end game.

Image courtesy A.Savin: http://en.wikipedia.org/wiki/File:MICEX.jpg

Underlying Russian stocks are about 35bps weaker this AM but the 2.2% move higher in the Ruble means the RSX +1.2% (underperforming a bit too underlying mkt).

As I like to say and have coined: “In EM All the best returns are made when things go from terrible to bad”. Russia case in point and Surgutneftegas is a poster child. This company is a long term holding for me because of the defensive nature of the stock albeit in the Russia context. This is a company arguably with >$30Bn cash on its balance sheet. We don’t know who controls the cash whether it be the government or the CEO and “red director extraordinaire”, Vladimir Bogdanov. This man has been running the company since I have been involved in Russia (18yrs) and is seen as a battle test tested, true protector of the people of Surgut. This means this company is run more like a government than an oil company – this is good and bad. What is has meant is that Surgut has stayed clear of the wrath of the Kremlin because it is truly run the old fashioned way.

What it means for shareholders is that they have to pay dividends according to their charter. The charter which award preferred shares to worked when the company was privatized. Preferred shares are mandated to play at least 25% of net profits in RAS (Russian accounting) terms. This is a company that actually becomes more defensive the more the Ruble devalues because of their cash pile and their Ruble based costs which get cheaper and cheaper.

In trailing terms the company dividend yield is about 15.7%, even after the recent rally.  


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