Russia: A Hidden Gem

As you know, the last six months haven’t been stellar for the emerging markets.

But what you’ve got to understand is that you can’t base your investing decisions on what’s happened in the past. Because the markets don’t care about the past. They care about what will happen in the future.

That’s why I stay focused on big, unstoppable global trends. Like the explosive growth of the middle class in emerging markets, higher energy consumption, higher demand for food, etc.

Besides, if you dig deep enough, you’ll always find some hidden gems.

Take Russia.

Most U.S. investors give Russia a wide berth. When they think of Russia they think of the “Evil Empire,” corrupt oligarchs and a dodgy political system.

But despite these negative views, the Russian stock market has done even better than the U.S. stock market so far this year – returning 9.7% year to date.

And despite these fat returns, the Russian stock market is still relatively cheap – on a price-to-earnings (P/E) ratio of 8.2 versus a P/E of 15.5.

This means investors are will to pay almost twice as much for a dollar of earnings U.S. stocks produce than they are willing to pay for a dollar of earnings Russian stocks produce!

Russia has a lot going for it:

  • It is a larger oil producer than Saudi Arabia.
  • It has five times more arable land than it needs to feed its population.
  • It has 15% of the world’s fresh water supply.
  • Its domestic retail market is bigger than that of Germany.
  • And its citizens are four times wealthier than Chinese and 11 times wealthier than Indians.

And if you want to talk long-term trends, the RTS Index – an index of 50 stocks that trade on the RTS Stock Exchange in Moscow – has returned 724% from December 1999 to December 2009.

You can buy into Russia by way of the Market Vectors Russia ETF Trust (NYSE:RSX). This ETF gives lots of exposure to Russia’s energy sector. And it has been a strong performer over the last year.

We recommended it here at IL Investor back at the end of August 2010. And since then, it’s up over 23%.

If you want to focus more on Russia domestic economy, take a look at the Prosperity Russia Domestic Fund Ltd. (LON:PRDF).

This closed-end fund trades on London’s AIM exchange. And it focuses on firms that stand to profit from the rapid expansion of Russia’s consumer sector and domestic capital investment.

Russia may get a bad rap in the press. But it is well positioned for future growth.

And it’s the future that counts…

 

 

 

Further Reading

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