The big day is here and the wires are awash with big takes on Russia. From my perch it's fun to watch, as there is little to report on, so everyone is working their relative narratives and busy “reading” Putin, telling you what he really thinks, and what he can and can’t do, and basically hamming the whole thing up. But it is a great story with lots of colour and drama.

But how to make sense of it all? The danger here is to get swept away by all the assumptions that most commentators (most of them not Russia experts) are piling onto Putin. My working rule with Russia, which is not famous for its free press or the open and honest discussion the Kremlin has with anyone, is to always look at what it does and not what it says.

To “understand” Putin the first thing you have to do is to assume that he is working for what he sees as in Russia’s best interests. That is not the same thing as what we think is in Russia’s best interests.

Putin says this all the time: the West needs to “respect” Russia’s interests. Our objection is that those interests are defined by the Kremlin and not the people, but then we glide over the fact that the people are actually very happy with Putin and all the choices he has made. There is an unspoken assumption on the part of the West that the Russian people don't actually know what is best for them and are making poor choices. Which is probably true. This is one of many confusing aspects to the whole “Russia problem”.

What complicates things further is the value system Putin uses is not the liberal democratic one we use in the West and that is the point of departure for all the narratives that pass for Russia analysis.

What are Putin’s values? That is a very hard question to answer. I believe some of the elements include: Russia is a big and important country and refuses to be dictated to by the other big powers; it is willing to work with its partners and its preferred venue is the UN, but the UN is simply ignored most of the time; specifically Russia (and China) object to the US being the world leader, hence their preference for a “multipolar” order; and this last point is manifest in what Russia sees as interference in its domestic affairs, specifically by the US.

That is the main bone of contention and will be the subject of today’s discussion. The Kremlin see it like this: The West is very sure that its liberal values are the best ones and so the West is actively promoting “democracy” and “freedom” around the world and specifically in Russia. Hence the West sees no problem with promoting local politicians like imprisoned opposition activist Alexey Navalny that espouse these values and do not see it as interference in Russia’s domestic politics, as they are absolute values.

The Kremlin, however, does see it as exactly that and an attempt to foist “alien” values on Russian society, as it doesn't accept the absolute nature of Western values. So the bans on Navalny, the “foreign agent” label for NGOs and media, and all the other repressions, follow as a logical next step. The West’s criticism of these actions only makes things worse and the whole thing spirals down to where we are today.

The whole “values” debate is littered with problems. I’m a westerner and so I do believe our liberal values are objectively best. But I have lived in Russia for many years and I know they don't share those values. Homophobia, for example, is almost universal. And not just in Russia; the situation is the same in Hungary, Poland and the Balkans to name only a few. Pew did a very interesting survey on all this a few years ago that showed extremely clearly there is a “values fault line” that runs down the Austrian border. (And even Austria is shades of grey.)

Just what you do about this I have no idea. But looking at the Western civil and sexual rights movements, it took them 50 years to get to where they are now and I don't see any reason why it should go much faster in Eastern Europe.

Another big problem is a contradiction in our own position: as sovereign nations Russia et al have the right to choose their own values, even if they are the “wrong” values to our eyes. But we have a “duty” to interfere to uphold what is “right”. But they don't accept the legitimacy of our duty to tell them what to do, as they never accepted our version of “right” in the first place… And so on into a dizzying spiral of moral confusion.

The bottom line is the default position the West takes is: “we are right, they are wrong.” I don't think the policies of coercion, sanctions and boycotts that follow from that assumption are the correct ones, as they have so far been almost entirely counterproductive and caused the pushback from Putin we have been objecting to. And I don't really have anything better to suggest other than what the gay rights people have always advocated: patient engagement and reasoned arguments to slowly change people’s minds.

I believe this problem will take several generations to solve. The only way to change people’s minds is by proximity to them, working together on a daily basis to each other's mutual benefit until you gain their respect. So from this point of view sanctions are more than counterproductive; they are flat out detrimental to our cause.

All this means that Putin and Biden will sit down today and basically talk past each other as they are on entirely different pages. The best outcome has to be that they agree to disagree and work out some sort of practical arrangement to keep out of each other’s hair. And this is exactly the outcome Biden at least is calling for and I’m certain it’s also the outcome that Putin would like to see.

Stocks and Polls 

Rather than do a big take on the Putin-Biden pow wow, I focused on one of the more practical aspects of the talks: the effect they have had on Russia’s stock market. It’s flying and currently at eight-year highs, showing no signs of slowing down either.

Here is a poignant point: while the press and politicians harp continuously on the values theme, the market doesn't give a monkey’s about them. Many Russian assets are world-class and ridiculously cheap. Russian companies are currently paying the most generous dividends in the world. While international interest rates are near zero, you can earn 6-7% just from the dividend payments, before you even start to think about the share valuation appreciation. Russian equities are currently paying returns that are better than bonds. That’s crazy.

And the fact of the summit promises an easing of tensions means a reduction in the traditional “Russia risk” premiums, and so the valuations are soaring. Tinkoff bank, Russia’s only purely online bank, has seen its stock go from $20 to $80 in just six months.

There was a similar rally after US president Donald Trump took over in 2017 where the Russian market outperformed the other emerging markets by 10% on the hope that Trump would calm relations with Russia. But it quickly faded out as the Donald started crashing about and the Russian economy would not emerge from its deep post-2014 recession for at least another year.

This time round there is another “new president” bump on the back of the same hopes that relations will improve, but it has the additional tailwind of the post-COVID economic recovery. The post coronavirus (COVID-19) tailwind is doubly powerful as the pandemic means the entire world’s economic recovery has been synchronised to happen simultaneously. Let’s just say that equity traders are getting excited, as they can see this rally going on for at least a year as all the excess profits being earned now will continue to be paid out until at least next summer as dividends, which will keep Russian stocks hot for at least a year or maybe even more.

And money is as important to our system as our values are: the dirty secret of capitalism is actually money is more important than our values. But funnily enough the boom in Russian stocks is part of the solution, as market participants are doing exactly what is needed: sitting down with Russians and working with them on a daily basis to mutual benefit and earning their Russian peers’ respect because they are good at what they do.

That leaves us in the very strange position where our best ambassadors to Russia are, and the agents most likely to change Russian values are our investment bankers. I’ll leave you with that thought.

This article first appeared as the blurb in bne IntelliNews’ EDITOR’S PICKS, a daily email digest of the best articles from the last 24 hours delivered free to your inbox. Click here to see the back issues and to sign up.