Ahead of the vote for Russian prime minister, Vladimir Putin set forth plans for a robust macroeconomic financial policy, reigniting the stock market to 2,280--a 3 percent gain--crossing the 2,200 mark for the first time since January as investor confidence swelled. Putin’s primary goal: Reduce the tax burden on the oil sector to stimulate production and crude oil refining and lower inflation to single digits within the next few years.

Russia’s fundamentally stronger economic potential and substantial financial reserves provide a robust foundation, which will help the country pass through this period of instability in the world economy. Russia can reap benefits from a number of opportunities, which are opening up now. This includes expansion of national capital abroad and domestic opportunities for boosting returns on investments of state financial reserves.

Putin was approved as prime minister by 392 out of 450 deputies who favored his candidacy.

I’ve been investing in Russia for quite some time now, and I still favor it as a valuable emerging market. I predicted in the beginning of the year that it would outperform well into 2008 and beyond. This recent spike is the beginning of a longer-term rally, and I expect profits to keep rolling in.

I’ve mentioned countless times that the Russian energy sector is undervalued. But with a new plan whose key priorities are developing the country’s financial sector and cutting the oil tax burden, energy stocks will be revalued. The sector will benefit from Russia’s tax-system changes and its outline for increasing its refining and gas business. (See my premium service The Silk Road Investor, 16 April 2008, A Bridge Across the Straits, for more.)

Earlier this week, Chip Hanlon--host of Market Neutral--invited me to give a podcast interview on the value of the Russian markets for Green Faucet. Visit www.greenfaucet.com/audio, and scroll down to Market Neutral: Russia to listen to my commentary.

The Rising Sun

The Japanese market is comfortably higher in the wake of The Economist’s negative cover story on Japan two months ago. It looks as though the longer-term picture for the Japanese economy and stock market is much more positive than most investors perceive.

I previously noted the following regarding the British weekly’s “Japain” analysis:

Although no one can be certain of the outcome, the British weekly is a contrarian indicator on many topics, and Japan is one of them.

When The Economist has mentioned Japan in the past, the market was ready to turn around, either to the upside or the downside, but always on the opposite direction of which the article had indicated. The usual time frame for the turnaround is between one and 18 weeks. Hopefully, the success of The Economist’s forecasts will continue.

I’ve made the case for Japan’s long-term potential on numerous occasions. The main idea is that the current economic cycle in Japan will be stronger and more enduring than most market observers anticipate. This view is based on the structural changes taking place in the Japanese economy (including changes in government financial institutions) and the eventual end of deflation.

On the latter point, the latest Consumer Price Index (CPI) numbers have turned slightly positive after a long time. This becomes even more important because they exclude food and energy.

short-term market volatility aside, for long-term bulls on the nation’s economy, Japan’s confidence and its exit from deflation is all that matters. The normalization of rates increases the alternatives available for the Japanese so they can use their substantial bank deposits in more productive and profitable ways. Investors who don’t think Japan’s deflation years are over shouldn’t own Japanese stocks.

Japan is still in a secular bull market that commenced in 2003, and despite its recent weakness, the Topix Index is building a good base around 1,200.

The majority of investors now have little interest in Japanese stocks, in stark contrast to the beginning of 2006. Investors then were influenced by the strong rally in the second half of 2005 and couldn’t get enough of Japan.

The recent action is positive because it’s relatively early; investors still have time to buy into this potentially very rewarding investment story.

Finally, the political situation in Japan remains murky, and former Prime Minister Junichiro Koizumi is greatly missed. The unwillingness of the current government to be more proactive with economic change will hurt Japan in the short term. It remains to be seen if Japanese authorities will be able to effectively navigate the economy back to normality (i.e., out of the deflation trap) and allow it to flourish once again.

On the other hand, if everything was politically harmonious in Japan, there would be no value opportunities.

On the global market front, markets continue to probe the proverbial wall of worry, seeking a way higher. It remains to be seen if this rally will stop soon or if we’ll enjoy an explosive ride to the upside. I still expect more gains to come investors’ way this year, although attention should be paid to the increased volatility.

When it comes to Asia, the big issue to which investors want answers is how to quantify the downside for Asian markets. Asia can drop 20 to 25 percent from current levels. This doesn’t necessarily mean that it has to drop, but if things get ugly, this is how it should play out.

Any weakness in Asia--especially of that magnitude--will offer another opportunity to buy into this strong bull market.