I find it amazing how I can often flick from the ten o’clock news on the Beeb over to ITV, with barely a flicker of change in the story line. How on earth do the editors end up with exactly the same running order on the world’s wide and varied news?
I guess there’s some sort of a formula the mainstream media use. Something that tells them exactly what constitutes public interest.
But this inadvertent censorship leads us into a deeply skewed perception of what’s really going on in the world. There’s a whole plethora of stuff that simply doesn’t reach the public at large. And when it comes to investments, a lot of the stuff that nobody’s bothered about really matters.
Because I think one of the biggest stories of our lifetimes is playing out in Russia today…
A currency to replace the dollar?
Over the last twenty-odd years, the world order has changed.
The two countries that really encapsulate what I’m talking about are Russia and China. This week, the newly installed Chinese premier, Xi Jinping, went walkabout.
As leader of what is now the largest trading nation in the world, his first job wasn’t to bang on Obama’s door, and he certainly wasn’t heading off to the next biggie – Japan! I suspect our own leader is quite a way down the pecking order too.
Jinping’s first official visit was to Moscow. And that says an awful lot about the new world order.
Russia and China have a lot to discuss. China is the world’s manufacturing hub and Russia has a whole stack of commodities – everything China needs to make the world’s bits and bobs. Putin and Jinping are discussing gas supply pipelines across Siberia, liquified natural gas (LNG) contracts and all manner of other partnerships and trade deals.
These guys no longer need to plough all their dealings through the established international markets. They want to go it alone. Now, I don’t know, but I suspect they’re even considering ways of bypassing the traditional dollar-based trading system.
Why on earth would these emerging titans want to be held hostage to the US and its dollar regime?
To my mind, the big story is unfolding behind the scenes. Russia has doubled its gold reserves over the last five years. China too is on a gold buying frenzy – though they don’t release official figures often – there’s strong evidence to suggest they’ve been loading up significant holdings over recent years. Why? Well, I suspect they’re making plans for the next international trading currency.
We’ll have to wait and see about that. But the point is, we in the West don’t seem to care. If you want your investments to succeed, then you’d do well to ignore the Western news bias and get stuck into what looks like a fantastic growth market. And it’s probably the cheapest market in the world…
Russia trading on six times earnings!
I know that a price/earnings (p/e) ratio isn’t the be-all and end-all. But it’s a pretty good way of assessing value – and certainly a great way of comparing investments across the board.
Remember, a p/e ratio tells you how many years it’ll take to get your investment back – the lower the better. Now, you may well think that because everyone seems to hate continental Europe right now, that it’d be on a low p/e, right? Wrong.
Spain is trading on 13 times earnings. Heck, Greece and France are on 15 times! These valuations are far from cheap, but in what way do these stock markets represent the risk of a serious European blow-up?
And then I look at Russia. The RTS, Russia’s stock exchange, is trading at six times earnings. Yes, that’s right. A country where economic growth knocks the socks off the West. At this point I want to break into Millwall Football Club’s chant, “No one likes us… we don’t care!”
I know Western commentators don’t like Russia. Oh, the corruption, oh, the tyranny… Putin, his cronies and oligarchs, blah, blah, blah. And most investors like to ignore Russia. Well, I say, more fool them. It leaves the market trading so cheaply, it’s ridiculous.
I have in the past suggested a couple of ways of getting exposure to Russia. I discussed Russian landlord Raven Russia’s preference shares. With a yield of over 9%, they were a good buy. The shares have gone up a bit since I mentioned them, but the yield is still over 8% – not bad in this day and age.
The other on Russia was JP Morgan’s Russian investment trust. Its performance has been up and down. Right now, the trust is trading at a 10% discount to its net asset value.
To my mind, that just about sums up how we look on Russia. The cheapest market in the world, and you can buy its stock, right here in London at a 10% discount!
I don’t want you to go flying in feet first. So next week, I’m going to run through this fund in more detail. I’ll show you why I think it’s worth a look.
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