How reliable is Russian ruble as an investment?
By 2019, the Russian ruble has become one of the best currencies in the world. But despite the consolidation of positions, investors often doubt that the currency will be stable for a long period. Each year, when the currency shows good performance, investors perceive it as luck or a sign that it is high time to take profits and diversify it into foreign assets. The more funds the investor has, the more often he chooses a foreign currency. The history and the feeling of high riskiness of an asset, dependent on geopolitics and internal changes in the country, make us choose other, more reliable instruments despite the success of monetary policy in achieving low inflation.
The country’s macroeconomic indicators are among the best in the world: the trade equilibrium provides an attractive market for foreign investors. The fear of introducing new restrictions by other countries was left behind, if geopolitics is not at the stage of ending the confrontation, then in any case it is trying to establish a balance and understanding between the parties. Surprises, of course, are always possible. Good annual indicators can be taken as chance, but the dynamics of the currency in the context of several years gives reason to consider it stable. After the turmoil in 2014-2015, deposits in the Russian ruble would have shown greater returns than the United States dollar, given the interest rate. On the other hand, strengthening of the Russian currency in the past years ended with another devaluation. How justified are these concerns, and perhaps it is worth converting your assets into dollars?
The main reason for the devaluation of growing markets is a significant strengthening of currencies in the previous period, not substantiated by the real values of the markets. In most cases, this happens due to overvaluation of the asset by investors and their simultaneous outgo in a stressful moment. The situation in Russia is far from this. Chairman of the Central Bank Elvira Nabiullina said that the strengthening of the Russian ruble is the result of favorable market relations on the part of foreign players. One way or another, the ruble still has vulnerabilities. In the event of a oil cost decrease to $40 per barrel, the ruble will begin to fall. But even in this case, the currency has a margin of safety in order to mitigate the effects of exchange rate volatility.
The ruble is likely to remain volatile, changing its value within reasonable bounds, according to the sentiment of foreign investors. It depends primarily on geopolitics and events in leading countries. The slack in the trade wars and the desire of Donald Trump to keep the stock market from collapsing during the election campaign establish a solid foundation for the fall in the value of the dollar against the ruble until at least autumn. In addition, Russians are not expected to make excess profits, and therefore inflation is unlikely to go beyond the reasonable. Therefore, investors in the Russian ruble have every chance to make money this year.