Russia's RTS stock index has been the third-best performing stock market around the world this year, with shares currently standing at a new high. So, has Russia -- widely known as "the lungs of Europe" -- fully recovered from its economic pneumonia?
According to the mainstream experts, the answer is a resounding Y-E-S. "Russia has always been a boom or bust type of play. We've seen the bust, now we're seeing the boom," reads a recent Moscow Times.
"Russia's Stocks Put Ugly Year Behind As Upside Beckons. It will start growing probably mid next year," adds Associated Press. .
You might want to reread the fine print. Russia's economy may indeed "start growing," but it hasn't yet, not by a long shot. In the second-quarter of 2009, the nation saw a 10.9% contraction in GDP, the steepest drop in 14 years. Not to mention double-digit inflation, 10% unemployment, grim industrial production, and falling retail sales.
So, what's left? Think: The powerful rally in oil, Russia's main export and lifeblood of its equity market. To wit: In 2008, as oil prices plummeted 60%-plus, the RTS saw a record capital outflow of $132.7 billion. Take the "morphine" of oil gains away, and the Russian economy is still in a world of pain.
(Russia's RTS: On the Road To Recovery? Only those who saw the start of Russia's stock market rally BEFORE it began can say whether the gains are here to stay. EWI's European Short Term Update has the original insight you won't find anywhere else. Click here to begin.)
There's one other red flag to consider: Many of the same folks who are now giving the RTS index a clean bill of health were ALSO reading the market its last rights in March 2009. At the time, the RTS Index was circling the drain of multi-year lows after plunging nearly 80% from its May 2008 peak. Here, the following news items from the time say plenty:
- "Russia's government warns that the recession will be much deeper than expected. The message is that things are going to get worse before they get better." (Wall Street Journal)
- "Russia will be a pariah. It is a pariah. It's difficult to do anything other than reduce your exposure." (AP)
We couldn't have disagreed more. In the March 2 European Short Term Update, the editor of Elliott Wave International's European Short Term Update Chris Carolan went on high alert to Russia's bullish potential and wrote:
"The RTS Index is clearly doing something different than the rest of Europe. I'm introducing an alternate count here that shows the move down as a diagonal fifth wave."
The implication of that Elliott wave pattern Chris saw in the RTS charts back in March was a turn to the upside. One week later, Chris confirmed the turning tide and issued this urgent message in the March 9 European Short Term Update:
"Russia has been rallying when other markets have been declining. The above wave count introduces the idea that wave 5 is finished. This is probably the most bullish wave count for any equity market that I've published in my short tenure here. Not only is the implication that a diagonal wave 5 is done bullish, but the wave ended in a failure, increasing the upside implications."
The 100%-plus rally since then speaks for itself.
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