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Must-see notes from the former Soviet Union… And it’s unstable neighbors

A few notes and thoughts on the former Soviet Union…

Kazakhstan devalued its currency last week, the tenge, by 20%. While there had been talk of slow depreciation, the scope and extent of the move was unexpected.

This is kind of the Kazakh way, as far as I can tell… do it fast, take the pain, and get it over with. Now they don’t have to deal with the endless speculation, denial, slow bleed, etc., and they can move on. After all, the country’s president is 73 and doesn’t have time to mess around.

Russia’s ruble has depreciated substantially in recent weeks, and Kazakhstan’s economy would suffer competitively as a result (Russia is one of Kazakhstan’s most important trade partners).

So what is the next currency to go? How about the Ukrainian hryvnia. Kazakhstan and Russia are (more or less) politically stable… Ukraine pretty much defines political instability.

Kazakhstan and Russia have bulletproof balance sheets and (though growth in Russia is a problem) are macroeconomically healthy. Ukraine is an absolute basket case. It’s pretty much hand to mouth.

Over the weekend I received some interesting insight from a friend over coffee. I can’t disclose the source, but he’s very close to the Ukrainian situation. He told me that — contrary to what you read in the press — Ukraine is heavily tilting towards going west, rather than east.

To briefly explain… the protests and troubles in Ukraine kicked off late last year because the country’s president rejected a proposal to increase integration with the EU, in favor of moving closer to Russia… it’s an issue wrought with geopolitical implications, and touches the core of Russia’s post-Soviet sense of self, as well as the next steps in the EU project.

For a while it looked like Russia had won the battle for Ukraine… but my friend says the oligarchs in Ukraine are abandoning Russia and siding towards the EU.

Ultimately, money calls the shots — and politics follow. If the country’s big money is rejecting the idea of moving closer to Russia… well, the politicians can fiddle and protesters can throw Molotov cocktails, but the country won’t be moving towards Russia.

This is counter to consensus, and could have substantial implications for (a) Ukrainian asset valuations, (b) Ukraine’s macroeconomic backdrop, and (c) Russia’s anger towards the rest of the world.

I will be monitoring this situation closely. All the elements are there for a good investment opportunity. The stock market has been slaughtered, valuations are ridiculously low, but I’ll need to find the right avenue.

On a side note, my friend says Armenia will be a site of major protests, a la Ukraine, in coming months. The country is hopelessly corrupt, experiencing unprecedented brain drain (and now has just 1.8 million inhabitants, unofficially… officially, closer to 3 million), and the government is completely messing things up… and (this is the key) the very powerful Armenian diaspora (far more Armenians live outside the country than in it) is finally waking up to the fact that there has to be real change.

I’m not sure where the investible angle is here (I don’t know if there is one), but it’s something I’m going to be keeping my eye on.

Crux note: Kim doesn’t just sit in an office and write about foreign markets… he travels to them and does the research himself. In fact, he’s about to embark on a journey to a surprising market that may soon open up to major American investment. It’s an exciting opportunity the U.S. government has long kept away from investors. Stay tuned to the Crux as Kim sends back dispatches from the field… we guarantee you won’t want to miss what he uncovers. You can sign up for a trial subscription to Kim’s newsletter – which includes a tutorial on how Americans can easily invest in these exotic markets – click here.

More from Kim Iskyan:

This is the story you’re not hearing about what’s roiling emerging markets today…

Emerging markets expert: Why I hope stocks fall even further

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