The Global Bull Meets the Russian Bear

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

But with the United Arab Emirates’ central bank helping to soothe investor fears by pledging Sunday to make extra funding available to all banks in the country, Asian stock markets are rebounding this morning from their steep fall last week.

This week’s Global Bull Market Alert pick — Russia’s Vimpel-Communications (VIP) — is a bet that Dubai’s credit problems are not substantial enough to make global stock market investors head for the exits. Here is why I expect Russia’s major mobile phone operator to perform strongly over the next couple of months.

First, VimpelCom’s fundamentals are strong and improving. The company increased its mobile subscribers by 1.7 million between the second and third quarters, bringing its total number of subscribers to 65.4 million. That’s 13% more than last year. The company also doubled its profit in the third quarter to 13.51 billion rubles from 6.51 billion rubles. That translates to earnings of 42 cents per ADS. But those impressive results still narrowly missed a consensus estimate of 44 cents. VimpelCom’s stock price dropped sharply, offering a good entry point.

Second, VimpelCom, whose primary focus has been the rapidly maturing Moscow metropolitan area, is expanding rapidly into Kazakhstan, Uzbekistan and a host of other countries in Central and Western Asia. The company completed the commercial launch of its cellular operation in Cambodia in May 2009. This was followed by the launch of wireless operation in Vietnam in July 2009. VimpelCom also recently signed an agreement to enter the Laos mobile market. The relatively lower mobile penetration in these new Asian markets allows VimpelCom to keep up the pace of its expansion.

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Finally, a vitriolic legal dispute that had been weighing on the stock has been resolved. In October, the company’s two major shareholders Telenor and Altimo announced plans to merge their holdings in VimpelCom and Ukrainian mobile operator Kyivstar to create a jointly owned telecom operator. The new company will take over the New York listing of the “old” VimpelCom. Oddly, the transaction which expands the size of the company substantially, does not yet appear to be reflected in the stock price. Renaissance Capital has put a target price of $31 on VimpelCom’s stock. That’s a 62% upside from its current price of $19.14.

So buy VimpelCom (VIP) at market today and place your stop at $16.00. For potentially bigger gains, try the April $20 call options (VIQDD.X).

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) ended the week slightly down after the turmoil in Dubai. With my expectation of a year-end rally, BKF remains a BUY.

Market Vectors Brazil Small-Cap ETF (BRF) actually ended the week higher as small caps proved to be surprisingly resilient. Your bet on Brazilian small caps remains a BUY.

The iShares MSCI Chile Investable Market Index (ECH) barely budged in response to the spike in global risk aversion. I am increasingly impressed with the remarkable resilience of the Chilean market. ECH remains a BUY.

The iShares MSCI Israel Cap Invest Mkt Index (EIS) ended the week higher, even as it pulled back from a year high of $52.96 last Wednesday. As one of the strongest relative performers in the portfolio, Israel remains a BUY.

The iShares MSCI Hong Kong Index (EWH) dropped back under the $16 level last week. But with Hong Kong soaring 3.25% overnight, Hong Kong remains a BUY.

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SPDR S&P Emerging Markets Small Cap ETF (EWX) pulled back last week from its recent new highs for the year. A bet on a bounce in global stock markets before the end of the new year, this volatile bet is a BUY.

First Trust ISE-Revere Natural Gas (FCG) ended the week higher as the benchmark natural gas contract on the New York Mercantile Exchange went through the roof Wednesday, surging 68 cents or 15%, to $5.16 per million British thermal units, its highest level in 10 months. With this sudden shift in sentiment, I am moving this position back to a BUY.

ICICI Bank Ltd. (IBN) ended the week slightly lower. With ICICI saying it has no material exposure to Dubai World, IBN remains a BUY.

Mechel (MTL) hit a high for the year of $21.67 two weeks ago, before pulling back. With Russia’s largest coking coal miner reversing two successive quarterly losses and saying the worst part of 2009 was already behind it, MTL remains a BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy.

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