Author Topic: Investing in Russia  (Read 5053 times)

Alaska13

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Investing in Russia
« on: May 11, 2014, 02:51:51 PM »
Anyone have an opinion? Russia stocks are trading at very low P/E and P/B ratios, both on an absolute basis and relative to Russia's historical discount to other emerging market countries.

See:
http://www.vaneck.com/market-vectors/equity-etfs/rsx/portfolio-analytics/
http://www.vaneck.com/market-vectors/equity-etfs/rsxj/portfolio-analytics/
http://tilt.ft.com/files/2011-04/01/Citi1.jpg

The main threat seems to be that Russia nationalizes the equity stake of foreign shareholders, but I think this would be net negative over the medium/long-term for Russia and thus that it will be avoided. I'm not advocating putting 100% of one's money into Russia, but some allocation seems prudent given the risk/return profile. Also note those Russia ETFs have trailing-12-month dividend yields of over 3%, compared to less than 2% for the S&P 500. 

All comments welcome here, especially by those who are more informed than myself.

econberkeley

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Re: Investing in Russia
« Reply #1 on: May 11, 2014, 04:20:46 PM »
Best time to buy emerging markets is at the time of some kind of political or financial crisis. However, if there is a considerable risk that the country will get worse in the long term, all the bets are off. I would rather invest in a relatively democratic country such as Argentina.

Nords

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Re: Investing in Russia
« Reply #2 on: May 11, 2014, 06:16:06 PM »
Anyone have an opinion? Russia stocks are trading at very low P/E and P/B ratios, both on an absolute basis and relative to Russia's historical discount to other emerging market countries.
I don't have the answers but I can define a circle of competence:

How do you tell the difference between a "value investment" and a "value trap"?  If a Russian investment sucks so badly that not even the Russians are buying it, then is it possible that they have better info than you?

Along the lines of the democracy comment, how do you assess Russia's political risk?  I'd speculate that if you're using logic then you're going to arrive at the wrong conclusion.  "Greed" and "vengeance" might be better criteria.

Why invest according to some arbitrary dividing line like a country border?  Why not invest in a broad-based mutual fund or ETF that assesses international equities according to the company & industry fundamentals instead of just Russian location/incorporation?  Unless you're a Russian expert, diversification is much more likely to pay off than concentration.

hodedofome

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Re: Investing in Russia
« Reply #3 on: May 11, 2014, 07:59:02 PM »
Check out the GVAL etf. It has exposure to Russia as well as other countries that everyone else is scared of :-)

KingCoin

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Re: Investing in Russia
« Reply #4 on: May 12, 2014, 05:08:04 PM »
I recently bought Gazprom stock and generally think it's worthwhile to allocate a small portion of one's portfolio to these "blood in the streets" investments (provided you're not just a straight indexer, which of course is totally sensible). We can sit here and think of 100 reason why Russian equities are risky, but at some price level, I think it's worth taking a flier. Consider:

1) It's trading at 2.4 P/E. That's earnings after money is stolen by company officers and after questionable management.
2) Gazprom has approximate the same earnings as Exxon Mobile and a very clean balance sheet. This is not some levered little cement company in a random banana republic.
3) To nationalize Gazprom and bagel foreign investors would essentially signal an exit from the international capital markets. This would be an extremely costly way to save a few billion dollars or stick it to "the man".
4) It's paying a 5% dividend. Not exactly a cash geyser, but good to see some cash flowing to investors.

These kind of stocks tend to defy rigorous analysis. There's simply no way to predict where this Ukraine debacle is headed or what impact it will have on Russia's place in the world. It could be a temporary flair-up or could signal the second coming of the cold war. However, at 2.4x earnings, it's already pricing in an extremely high probability that this ends in tears.

It's hard to time this kind of investment, but I think it's a good one to stick in a box and see what it's worth in two years. All you need is for it to trade at a still shockingly cheap 4.8 P/E to double your money. It's recently traded at a 9 P/E, so it's not exactly a pie-in-the-sky bogey.
« Last Edit: May 12, 2014, 08:39:28 PM by KingCoin »

soccerluvof4

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Re: Investing in Russia
« Reply #5 on: May 16, 2014, 04:52:11 AM »
I recently bought Gazprom stock and generally think it's worthwhile to allocate a small portion of one's portfolio to these "blood in the streets" investments (provided you're not just a straight indexer, which of course is totally sensible). We can sit here and think of 100 reason why Russian equities are risky, but at some price level, I think it's worth taking a flier. Consider:

1) It's trading at 2.4 P/E. That's earnings after money is stolen by company officers and after questionable management.
2) Gazprom has approximate the same earnings as Exxon Mobile and a very clean balance sheet. This is not some levered little cement company in a random banana republic.
3) To nationalize Gazprom and bagel foreign investors would essentially signal an exit from the international capital markets. This would be an extremely costly way to save a few billion dollars or stick it to "the man".
4) It's paying a 5% dividend. Not exactly a cash geyser, but good to see some cash flowing to investors.

These kind of stocks tend to defy rigorous analysis. There's simply no way to predict where this Ukraine debacle is headed or what impact it will have on Russia's place in the world. It could be a temporary flair-up or could signal the second coming of the cold war. However, at 2.4x earnings, it's already pricing in an extremely high probability that this ends in tears.

It's hard to time this kind of investment, but I think it's a good one to stick in a box and see what it's worth in two years. All you need is for it to trade at a still shockingly cheap 4.8 P/E to double your money. It's recently traded at a 9 P/E, so it's not exactly a pie-in-the-sky bogey.


^+1 this and if you think there will be a reversal in Russia when / if things get better its not like overnight the ETF is going to catch up. Sometimes/alot of time actually its ok to not try and find the bottom but buy it when things change and there is alot of room for ithe ETF to go up. Or nibble lightly and be willing to add in big drops but most people dont know when to stay in or when to get out.

SDREMNGR

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Re: Investing in Russia
« Reply #6 on: May 17, 2014, 11:45:03 AM »
I would argue that Russia is as stable as it's going to get for the foreseeable future.  Whether Putin just throws over the government and declares himself Emperor is yet to be seen, but after his departure, I have to think things will be more of a shit storm than they already are.  IF you know what you are doing, then I'm sure there's oodles of money to be made.  If you don't, then kiss your money goodbye.

rmendpara

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Re: Investing in Russia
« Reply #7 on: May 17, 2014, 02:58:14 PM »
Agree with other poster. When people start panicking is a great time to buy in. If only we had bought into Europe ETFs after the US started picking up but Europe was still having Greece/Portugal/etc troubles a few years ago.

Unless you want to take a big risk, an ETF with general exposure to the region(s) you want to get into is probably the best way to maximize exposure and minimize stock specific risk.

Russia is pretty nuts, but I don't think they want to go back to a Communist regime. Nationalizing private business would cause most foreign investment to cease almost immediately and for the foreseeable future. It might happen, but only if a serious power struggle ensues and  turmoil sets in.

Of course, you can't predict everything. Crazy things happen.

To summarize, find an ETF/fund to get some exposure, and put it on autoinvest over the next few months to get some good exposure. As things start to turn around, stop investing additional funds, and hold on until you see your target return. Then sell out/take some gains and repeat elsewhere!

Happy investing. :)

sol

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Re: Investing in Russia
« Reply #8 on: May 17, 2014, 07:57:57 PM »
Meb Faber thinks Russia is a great value right now, in the context of a diversified international portfolio.  His ebook was free a while back and I picked up a copy on the advice of another forum member:  http://www.amazon.com/Global-Value-Bubbles-Crashes-Returns-ebook/dp/B00J351PXE

Basically, he thinks the best time to invest in a particular market is when the CAPE is lowest.  In the US that makes now not a terrific time to invest, but other countries have different CAPE values and he thinks that is predictive of how those stock markets will perform in the future.  So every year he ranks every country that has an investable market by CAPE, and he invests in the ten or so lowest ones.  Right now Russia is leading that list.  A few years ago it was Greece and Portugal.  He recommends whole-country ETFs as the appropriate vehicle for betting on a particular country, not buying specific companies or industries.

I think it takes balls of steel to follow that kind of investing plan because it means always throwing your money wherever the turmoil is.  Iceland is having a meltdown?  Invest!  Greece is collapsing?  Invest!  I wouldn't do it with my whole portfolio, but given recent discussions here about the value of CAPE in predicting market returns I think the idea is interesting.  I'd need to do a little math on my own before committing any serious dollars to it, though.

bobmarley9993

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Re: Investing in Russia
« Reply #9 on: May 17, 2014, 08:42:42 PM »
I think the situation with Russia will get worse before it gets better.  Politically things are still deteriorating.  At the moment it's really only down about 20% from the high of last year, I don't feel that's really that much of a discount.

In general, sol, I like your or Mebane Faber's strategy of investing in low CAPE countries.  There are some academic papers that provide evidence that this produces out-sized returns.

smedleyb

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Re: Investing in Russia
« Reply #10 on: May 17, 2014, 09:33:05 PM »
I recently bought Gazprom stock and generally think it's worthwhile to allocate a small portion of one's portfolio to these "blood in the streets" investments (provided you're not just a straight indexer, which of course is totally sensible). We can sit here and think of 100 reason why Russian equities are risky, but at some price level, I think it's worth taking a flier. Consider:

1) It's trading at 2.4 P/E. That's earnings after money is stolen by company officers and after questionable management.
2) Gazprom has approximate the same earnings as Exxon Mobile and a very clean balance sheet. This is not some levered little cement company in a random banana republic.
3) To nationalize Gazprom and bagel foreign investors would essentially signal an exit from the international capital markets. This would be an extremely costly way to save a few billion dollars or stick it to "the man".
4) It's paying a 5% dividend. Not exactly a cash geyser, but good to see some cash flowing to investors.

These kind of stocks tend to defy rigorous analysis. There's simply no way to predict where this Ukraine debacle is headed or what impact it will have on Russia's place in the world. It could be a temporary flair-up or could signal the second coming of the cold war. However, at 2.4x earnings, it's already pricing in an extremely high probability that this ends in tears.

It's hard to time this kind of investment, but I think it's a good one to stick in a box and see what it's worth in two years. All you need is for it to trade at a still shockingly cheap 4.8 P/E to double your money. It's recently traded at a 9 P/E, so it's not exactly a pie-in-the-sky bogey.

King, is OGZPY the only way to trade this?  Also, do you have any issues with OTC stocks?  I'd love to hear your take on this.  (I was bidding under market all last week for a little bit of OGZPY, stock has been on fire.)

Love this idea.




KingCoin

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Re: Investing in Russia
« Reply #11 on: May 17, 2014, 10:02:23 PM »
At the moment it's really only down about 20% from the high of last year, I don't feel that's really that much of a discount.

Well, it's down 59% in the last 7yrs, and 43% over the last 3yrs. Do those figures strike you as more enticing? Of course, where the price was at some point in the past is sort of irrelevant (the fact the the Princess Diana Beanie Baby is down 99.8% in the last 7yrs doesn't make it a compelling buy), hence the use of measures like CAPE.

The market may well be pricing Russian equities correctly. That doesn't make them a bad buy, just a high risk/reward proposition that should be factored into your portfolio as such.


King, is OGZPY the only way to trade this?  Also, do you have any issues with OTC stocks?  I'd love to hear your take on this.  (I was bidding under market all last week for a little bit of OGZPY, stock has been on fire.)

Love this idea.

I don't have a problem trading OTC ADR's. Gazprom is far more liquid on the London exchange (still trades USD denominated) if you want to put in a market order and be reasonably confident you're not going to get hosed on bid-ask.

I'm up almost 20% on the trade and thinking about bailing and waiting for a better entry point (even though I had this pegged as a set-it-and-forget-it). Publications like Crains Interest Rate Observer are pushing the trade hard. Barring the index as a whole, something like Lukoil, which has pretty respected management practices, is a less volatile way to make the same play at a higher cost.

As a similar trade, I like buying Puerto Rico GO's here. Especially the new 8's. They yield over 9% tax free and I think they should fare well even in a debt restructuring. That issue is a hedge fund hotel as is likely to be volatile, but also protected if things hit the fan.

bobmarley9993

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Re: Investing in Russia
« Reply #12 on: May 18, 2014, 06:53:42 PM »
At the moment it's really only down about 20% from the high of last year, I don't feel that's really that much of a discount.

Well, it's down 59% in the last 7yrs, and 43% over the last 3yrs. Do those figures strike you as more enticing? Of course, where the price was at some point in the past is sort of irrelevant (the fact the the Princess Diana Beanie Baby is down 99.8% in the last 7yrs doesn't make it a compelling buy), hence the use of measures like CAPE.

The market may well be pricing Russian equities correctly. That doesn't make them a bad buy, just a high risk/reward proposition that should be factored into your portfolio as such.




I think you can do relative investing when you are trying to take into account specific events.  A year ago the threat of Russia shutting out foreign shareholders was reasonably low.  Now you have the US imposing sanctions and going after Putin's assets.   Russia is dumping US treasuries as a result and who is to say they won't start voiding the ADR ownership?  All I am saying is in addition to all of the other fun with Russian equities you now have this additional threat and you are getting a 20% discount for that threat.  In my opinion, what is happening in Ukraine is not a small issue and Russia is not backing down, 20% is not enough.
« Last Edit: May 18, 2014, 06:55:15 PM by bobmarley9993 »

train_writer

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Re: Investing in Russia
« Reply #13 on: May 19, 2014, 03:21:35 PM »
I have a bit of moral problems with this at the moment, but I know that there are loads more 'blood in the streets' economies than just Russia and Ukraine..

Nevertheless, I bought a few pipelines/ stocks (don't know a proper translations) 8 years ago. It was my first stock buying EVER. I spend 200 euros on 3 'shares' and it is now worth ~ 1700 euros.

That said, I have also gone wrong at exactly the same time: 50 euros now worth 20 cents..

I would never recommend relocating much assets to these economies, as huge swings are possible including sudden bankrupts or 'dissappearings from the books'. Now that I am a bit wiser, I would not ever again buy stock from Gazprom (personal ethical line has been crossed). But I guess everyone has to decide for him/herself.. I do invest at a certain sector in Russia and Ukraine, but I know this sector (off shore) quite well and even then, it can go down very quickly without a chance on recovery for years

Pylortes

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Re: Investing in Russia
« Reply #14 on: May 19, 2014, 04:11:36 PM »
I also did some investing in Gazprom (OGZPR) in mid to late March- for much of the same reasons KingCoin listed above.   The market had it priced for a very dismal outlook.   It has since rallied 26%.  This type of investing is not without risk however and I would not advocate putting more than a small percentage of your investable funds in Russia or the like unless you were able to live with large possible losses.  I would also caution that I had Gazprom on my radar (watch list) for a whole year before the price dropped to an extent that I had the nerve to actually invest.   In Gazprom's case, as long as the situation in Ukraine does not fall into war I think I'll be okay.  The stock has rallied on rumors that Russia is about to sign a deal with China for Gazprom to supply it with large quantities of NG, which would open up a large market for Gazprom away from the troubles with Ukraine/Europe.   As an American, this deal makes me sick since China would be bailing out Russia's bad behavior, but as an investor this is a positive for the company.    I can't really comment on other possible Russian investments, they all likely come with significant risk however.