Russia ain’t pretty – but it’s tempting

I’ve written here several times this year that if you think it makes sense for long-term investors to buy cheap stock markets over expensive stock markets, it makes sense to buy Russia.

This hasn’t looked particularly clever in the last few months: Garry White, writing in the Telegraph points out that net capital outflows from Russia reached $75bn in the first part of the year, while the stock market is down 20% since the end of last year.

If it was cheap before, much of the market is even cheaper now. Gazprom (which, says White, has “the world’s largest oil reserves”) is on a price/earnings (p/e) ratio of 2.7 times. Rosneft is on 4.4 times.

There is, of course, the possibility that these prices still aren’t cheap enough. Given how much there still is to worry about (war, sanctions, inflation, collapsing growth, etc), White worries that Russia might end up being a classic value trap rather than an improving market to catch on the cheap.

He could well be right. But we still find it almost impossible to resist the prices. On a forward p/e of a mere four times, the Russian market is, as Oriel Securities put it, “one of the cheapest markets on the planet”.

In a world where investing is mostly about choosing between markets suffering from varying degrees of overvaluation, finding anything that is objectively cheap is interesting.

Oriel reckons Russia “may offer opportunity” for contrary value investors. We aren’t yet totally convinced that now is the time to add too much to your Russian holdings (see our recent cover story on the matter), but those who are feeling optimistic and brave might roll the words “cheapest market on the planet” around in their head for a bit and consider buying a little for the long term.

I’m hanging on to my holding in JPMorgan Russian Securities (net asset value down 22% since last November) and Oriel suggest adding Blackrock Emerging Europe (down 16%)  – a trust which is over 50% exposed to Russian and Ukrainian equities.