“The Russian stock market is now trading at a forward price-to-earnings ratio of 2.7,” Chris Mayer dutifully notes in his latest Special Situations alert. Such a valuation makes the world’s 10th largest economy essentially the cheapest market in the world… valued even lower than perennial market dogs like Argentina and Pakistan. “Argentina, a mess of a country, enjoys a price-to-earnings ratio three times greater than Russia’s.
“Russia is rich in natural resources. Gazprom, the state gas monopoly, has a natural gas field in east Siberia with reserves that alone would equal those of Canada, the world’s third largest producer of natural gas. Russia itself has one-quarter of the world’s natural gas reserves. It is also the world’s largest natural gas producer, and second largest exporter of crude oil in the world, behind only Saudi Arabia. Because of this, the prospects for Russia’s economy largely hinge on energy prices.
“Energy prices cracked in 2008 and have not recovered. The Russian stock market was also taken apart. (See nearby chart). That’s what happens when your chief export falls 75% in price.
“Bullish sentiments on Russia find foundations mostly in the cheap valuation of Russian stocks. But if you also believe in the coming bounce in commodity prices, Russian stocks are clear winners in such a scenario. At only 2.7 times forward earnings, are you compensated for taking the risk?
“The best way to play a rise in Russia’s stock market is to buy the Russian ETF, which trades under the symbol RSX. This gets you a basket of Russian stocks — heavy on the oil and gas, of course. It’s a tempting speculation. Whatever 2009 holds, as fund manager Eric Kraus writes, ‘Boredom is unlikely to be a major concern.’”
(Chris’ latest Special Situations issue — dealing with topics from investing in Russia, to Brazilian gold, to Scandinavian fertilizer — is a must-read for any investor seeking alternative investment advice
I like the play if they can survie. The markets where closed again limit down.
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