I’m a big believer that investing in overvalued Canadian or U.S. stock markets will not go very well over the next few years. Instead, I urge investors to check out other options. First I took a look at investing in Poland. Then I talked about investing in Turkey. Today’s post will talk about how to invest in Russia.
Well kids, America is screwed. It just elected Donald Trump, who is worse than a Hot Pocket stuffed with cancer. The market is going to zero and there are going to be lynch mobs cruising the streets, ready to send all of the foreigners into special internment camps. Try and act surprised when this all happens.
Based on this news, you might decide to pull assets out of Merica and put them to work in other places. But where? Canada is overvalued. The European Union might be just a couple months away from losing Italy, one of its more important members. Interest rates in Japan are lower than Ryan Goins’ batting average. Yeah, that’s right. A baseball joke. China is a bubble waiting to burst. And so on.
There are still plenty of places to put your cash, however. I highlighted a number of cheap countries in a recent blog post, including the UK, Italy, Brazil, or South Korea. And we already talked about a couple of other places, specifically Poland and Turkey.
In short, there are plenty of places to put your capital to work that aren’t in overvalued North American markets. Here’s the case for another choice that seems a little out there, Russia.
Cheapest market in the world
No matter what metric you use, Russian stocks are cheap. It’s a good time to invest in Russia.
Russia has a CAPE ratio of 5.1, which means its largest companies trade at 5.1 times their average earnings over the last ten years. It trades at seven times trailing twelve month earnings that are somewhat depressed because many of its top companies are linked to oil and gas, a sector with a depressed bottom line.
Russian stocks trade at 0.6 times revenue and 0.9 times book value. Oh, and they pay a collective dividend yield of 4.3%.
Russia is the cheapest stock market in the world. Nowhere else is even close.
There are two ways to invest in Russia, through individual stocks and ETFs. Let’s take a look at owning individual stocks.
The Moscow Stock Exchange (RM:MOEX) is a perfect example of how cheap that market is. The Canadian stock market trades at about 16 times earnings and at about 1.2 times book value. Moscow’s stock market trades at 9.2 times earnings. The TMX Group pays a dividend yield of 2.8%. Moscow pays a yield of 6.5%.
That thing is cheap, playaz. Damn.
Yes, Italics Man?
Please don’t say playaz ever again.
Finally, some good advice from italics man!
There are a few problems with buying Russian stocks, however. They’re hard to trade, with only a dozen or so listing on the NYSE with any sort of volume. There is more selection on the London Stock Exchange, but most retail investors don’t have access to trades in London.
And then there’s the language barrier. Some Russian companies put out English investor materials. Most don’t.
It’s complicated to invest directly into Russian stocks. An ETF is a better choice.
There are quite a few Russian ETFs. Turns out I’m not the only one with a hankering to invest in Russia.
Let’s start with the one I own. It’s the Market Vector Russia ETF Trust (NYSE:RSX). It owns 31 different Russian stocks with an emphasis on the energy sector. Energy will show up a lot here. The whole damn country is basically a big ol’ bet on energy and materials. The ETF has an MER of 0.67%, which is pretty reasonable for a specialty ETF, and it’s by far the biggest with almost $2 billion in assets.
The same company also has a small-cap Russian ETF (NYSE:RSXJ). It holds a total of 26 different small Russian stocks with a MER of 0.77%. It has way less focus on energy, with only 5% of the portfolio invested in the sector. Utilities is the biggest weighting. It pays a dividend yield of about 1.7% while its larger cap cousin has a yield of 2.8%.
There’s also the SPDR S&P Russia ETF (NYSE:RBL), which is pretty tiny without much liquidity. It owns a grant total of 48 different stocks, mostly large-cap weighted. Nearly half of assets are in energy, but it has paid a 3.7% dividend in the last year. The management ratio is lower too, coming in at 0.59%.
Finally, there’s the iShares MSCI Russia Capped ETF (NYSE:ERUS), which is the second-biggest Russia ETF with a market cap of $300 million. It holds 28 different large Russian stocks as well as a 14% share in Putin’s lunch. It charges investors a management fee of 0.6%.
Here’s what you need to know about those four ETFs. Three are basically the same. They invest in large-caps with a focus on the energy sector. They’re a play on commodities as much as they’re a play on Russia itself. I chose one because that’s exactly what I wanted exposure to. I defaulted to the biggest one with the most volume even though my position isn’t really that big.
I’m a long-term bull on energy. It’ll come back eventually. I plan to make a lot of money when that happens. The secondary exposure to other cheap Russian stocks is just a bonus.
The small-cap ETF is more of a play on the domestic Russian economy. It’s filled with power companies and retailers and such. It might be a little less volatile, but ultimately investing in Russia is all about energy. That’s why I didn’t choose the more boring name. I wanted that volatility.
Wrapping it up
Like with Turkey and Poland, I think an investment in Russia today will end up doing well over the long-term. I realize the country kind of stinks and it’s filled with crooks, but those are the sacrifices you’ve got to make in 2016 to get cheap stocks.