There has been a heavy flow of emerging markets economic news in recent days. Russia and Romania tightened interest rates and Russia announced its plan to attack inflation. The likely Russian successor to Putin also suggested a reducing government influence over private business and the Ukraine officially joining the World Trade Organization (over heated protest from Russia).

Also, Turkey carved its interest rates by 25 basis points and Thailand decided to dump much of its capital control measures. Sounds like a lot of information, but its par for the course - it's a big world and emerging markets are becoming a bigger part of the global news and economy!

Of these headlines, I believe the most relevant stories to us, as emerging markets investors, are the ones pertaining to Russia and Turkey. There are potentials recommendations on my radar in both that are nearing my buy points. Thailand is also of interest, but not in the near term. I'd like to see more stability there first on a number of fronts.

Turkey:

We've already discussed one interesting Turkish company; Turkcell (ADR: TKC), in the February 15 post. The interest rate news has been pretty well neutral to the Turkish financial markets and we still like Turkcell's prospects. I'm looking to buy Turkcell on dips.

Russia:

Russia is currently a fertile investment environment, with strong GDP growth, a huge infrastructure boom, huge budget surpluses and a fast-growing middle class.

First let's laser in on two individual Russian companies of interest, both available to US investors as ADRs. Gazprom (ADR symbol: OGZPY) is the infamous state-run Russian oil and gas giant. VimpelCom (ADR: VIP), which I consider the most attractive Russian telecom stock.

Gazprom has a massive captive market encompassing much of Europe, as well as the regulatory and operational benefits of government backing.

VimpelCom has huge upside, since it only has 10% market penetration currently. Also, the recent Golden Telecom merger will allow savings and increased margins.

We're looking to buy small positions in Gazprom and VimpelCom on any pullbacks but not quite at these levels. I'll fill you in on all the details on these two companies when the time is right to jump in - for now just keep them on your "watch" list.

A third Russian company I really like is Sberbank, which isn't accessible to US investors directly. It is however a meaningful component of the regional ETF I'm taking small bites of now (CEE - below). I consider Sberbank one of the best proxies for Russia's rapidly expanding middle class and living standards.

As mentioned above, we're not quite ready to buy into Gazprom and VimpelCom, but right now we are making a more diversified bet on the region. Let's zoom out and look at a bet on Russia as a whole, along with the surrounding Central European region, with the Central Europe and Russia ETF (symbol: CEE).

CEE is 52% concentrated in Russia (second and third places goes to Poland and Turkey, both of which I also like). About 34% of CEE is devoted to the energy sector, with large concentrations also in financials, materials and telecom. Gazprom and another energy companies account for 20% of the fund, a prominent metals company 7.4% and Sberbank 5% (last data available is from 10/07, so these weightings may have changed). That's a good mixture for current times and my macro views on the region.

Hedging Position:

As well as nibbling on a small position in CEE, we've put on a modest hedge by entering a small position in the ProShares Ultrashort MSCI Emerging Markets ETF (symbol EEV). I sure wish ProShares would shorten the names of their funds!

EEV is designed to move inversely to the emerging markets ETF (EEM) with about a 2 to 1 ratio. We entered a modest position in EEV near $80, with a mental stop at about $77 (which would occur if the EEM rallied strongly). This hedge will partially protect our current holdings should the emerging markets take a major hit while we're waiting for clear signals.

Best wishes,
Jeff Manera

Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net