On July 16, relations between the U.S. and Russia will likely get warmer…
In their first formal summit, U.S. President Donald Trump will sit down with Russian President Vladimir Putin in Helsinki, Finland.
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No one knows exactly what the two will talk about – although Russia’s 2014 annexation of Crimea from Ukraine is reportedly off the table (more on this below).
But Trump has already hinted about one possible topic: Bringing Russia back into the G7 – the group of the seven largest advanced economies in the world (consisting of Canada, France, Germany, Italy, Japan, the UK and the U.S.).
You see, Russia has been a semi-pariah to western governments since it invaded Crimea in 2014. The country has been slapped with numerous sanctions and it was even kicked out of the G8 (which then became known as the G7).
But bringing Russia back into the fold is not as simple as changing the signs at the next G7 conference…
For starters, the other G7 countries would have to be convinced to let Russia back in. Given the current geopolitical environment, that seems unlikely.
And then you have to ask: Would Russia even want to re-join the old guard?
Russia already has its own (fast-growing) club
Russia has its own global club, which doesn’t get as much air time as the G7. It’s called the Shanghai Cooperation Organisation (SCO).
Founded in 2002, the SCO began as a relatively humble organisation composed of the then-much-less powerful states of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.
Since then, it has grown significantly, in terms of members (India and Pakistan recently joined) and economic might.
As you can see in the table below, China alone has seen a massive 713 percent increase (in U.S. dollar terms) in gross domestic product (GDP) from 2002 to 2017. And the other members have all seen triple-digit growth as well. On average, the SCO has seen GDP growth of 571 percent from 2002 to 2017.
Meanwhile, the old guard nations of the G7 haven’t grow nearly as much. As you can see, Canada has seen the most growth in GDP – at 118 percent from 2002 to 2017. And the average GDP growth for these countries is a comparatively paltry 63 percent.
In short, the G7 is made up of developed nations that are not growing much anymore. From a business perspective, the main thing they have to offer Russia is lifting their sanctions, which would allow the Russian elite to conduct business easier.
Meanwhile, the member states of the SCO are booming. The economic opportunities in an environment of growth are much greater.
So will Russia want to go back to the old guard? Probably not. Which club would you rather be a part of?
And where would you invest?
Economic growth isn’t a prerequisite for a stock market to move up in value. There are plenty of reasons stocks – and entire markets – can fall, or move up only very slowly, despite strong underlying economic growth of the economy where they operate.
But all else equal, over the long term it’s a lot easier to make money in markets where the underlying economy is growing quickly – in part because corporate earnings are more likely to be rising too.
We also looked at the stock markets of the economies that are part of the SCO (those for which there’s reliable market data as far back as 2002), as well as for the G7 (all of them). The average SCO market has risen just over 1,500 percent during that period… compared to the average G7 market increase of 190 percent.
(Despite my best efforts a number of years ago, Kyrgyzstan’s stock market isn’t included in the computation for the SCO figure… market data for the period isn’t available.)
Naturally there are a lot more risks to investing in less developed markets. (And Russia’s market in particular has been a value trap for a long time.)
But some of the fastest-growing economies include Bangladesh and Vietnam… and there are lots of others. These are the markets that are going to deliver far greater gains than the markets of the G7.
So… where would you rather invest? It’s pretty clear to me.
Publisher, Stansberry Churchouse Research