Russia: opportunity for the adventurous

Russian stocks are at bargain levels right now. Here are three ways brave investors can buy in.

Is it time to take a fresh look at Russia? asks Jen Wieczner on Fortune.com. The crisis in Ukraine has sent foreign funds running for the exits, pulling an already-depressed market down by around 12% so far this year.

Major companies such as energy giant Gazprom have traded on price/earning (p/e) ratios as low as three in recent weeks, while the overall MSCI Russia was on a p/e of five at the end of March. "Investors who thought Russian stocks looked incredibly cheap before think they're practically irresistible bargains now."

Of course, there's good reason for this apparent cheapness. Political risk is high and the quality of most companies is poor. The Russian economy has been struggling for some time and sanctions by Western governments are set to make matters significantly worse, says Capital Economics.

Further capital outflows are likely to push the ruble down, spurring higher inflation that will eat into incomes and damage consumer spending. The central bank will be forced to keep monetary policy tight at a time when looser policy is needed to boost growth. Confidence will suffer and business investment, which was already weak, will stagnate.

So, there's no doubt Russia remains a risky destination and the outcome of events in Ukraine is entirely unpredictable. However, a crisis is often the best time to buy and at current valuations it still looks a good long-term opportunity for adventurous investors.

Ways to get access include the HSBC MSCI Russia ETF (LSE: HRUB), which invests in larger firms, while the Prosperity Voskhod Fund (AIM: PVF) is an investment trust specialising in small- and mid-cap stocks. Those who prefer open-end funds could consider Neptune Russia & Greater Russia, run by the experienced Robin Geffen.

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