We started suggesting that Russian stocks were cheap enough to buylast year. It seemed to us at the time that given the choice of buying, say US equities, at cyclically adjusted p/e ratiosway above long-term averages and buying Russian equities at prices way below long-term averages, it made sense to go for the latter.
Good long-term investing is all about buying cheap things and then waiting for a catalyst of some kind to drive them higher. Our hope had been that that catalyst would be a significant improvement in corporate governance and a rise in dividend payouts from state dominated companies (see our cover story on that here).
So far, as most investors will know, it hasn't quite worked out like that. Instead, the crisis in the Ukraine at one point pushed the Russian market down by 12%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
So what now? It might sound simplistic, but for now our view is simply that what was cheap is even cheaper, something that can only be a good thing for long-term investors. This crisis will have an impact on how international investors view Putin (not in a good way) and many are also predicting at least a "mild recession" (Morgan Stanley) as the effects of uncertainty kick in.
But for us, the real thing to bear in mind is this: Russian equities now trade on a price/earnings ratioof only four times and are, says the FT, "among the cheapest if not the cheapest in emerging markets" most of which are on at least eight or nine times earnings.
Russia doesn't suddenly need to create the stability and economics of Norway for its stock market to rise in the medium term. It just needs to improve a little bit. It is, says Luca Paolini of Pictet, also in the FT, all about "expectations vs reality."
Stephanie Flanders is with us on this one too: she is well aware of the political risk premium that has to be built in; but nonetheless, at these prices, she says, "you don't have to take a very optimistic view of Russia's future to see some potential upside in Russian assets". There's an awful lot of bad news in the price.
I've suggested buying the JP Morgan Russian Securities investment trust in the pastand you can now get it on an even bigger discount to its net asset valuenow than you could then.
Some readers think this it is a terrible fund its performance has been poor and it is heavily invested in value rather than in growth (think energy over retail) companies thanks to the fact that the board has been attempting to lower the risk profile of the company. This, to one reader, seems absurd. After all, he says, if you don't fancy a little risk, why invest in Russia?
I take the point, but one of the reasons we want to be in Russia in the first place is for the value stocks our hope is that better corporate governance will do huge favours for the prices of the likes of Gazprom. I'm sticking with my holding in the trust for now.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
House prices to crash? Your house may still be making you money, but not for much longerOpinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
-
Prepare your portfolio for recessionOpinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
-
Investing for income? Here are six investment trusts to buy nowOpinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
-
Stories are great – but investors should stick to realityOpinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
-
Everything is collapsing at once – here’s what to do about itOpinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
-
Value is starting to emerge in the marketsOpinion If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy traditionally expensive growth stocks on the cheap, too.
-
ESG investing could end up being a classic mistakeOpinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
-
UK house prices will fall – but not for a few yearsOpinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
