Tags: Russia | Egypt | stock | election

Don't Be Tempted to Buy Russian Stocks

By    |   Wednesday, 12 Mar 2014 07:17 AM

Russian stocks were about 50 percent below their 2008 highs when Russian forces intervened in Crimea. The Russian stock market sold off even more on that news and the price-earnings (P/E) ratio fell to 6, about one-third the level of the S&P 500. Some investors believe the low P/E ratio is a buy signal and are now looking at Russia as a potential investment assuming the news can't get much worse.

The news actually can get worse, and Russian stocks still carry a great deal of risk.

Egypt offers a useful precedent to see how stock markets react to political turmoil. Opposition to President Hosni Mubarak began in January 2011 and he stepped down the next month. Within days, the Muslim Brotherhood won a majority of the seats in the country's legislative branch and work began on a new constitution. When voters approved that constitution in December 2012, the stock market bottomed after declining more than 50 percent in a year.

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Stocks stalled as the presidential election neared and Mohamed Morsi's win led to a brief rally before a second bear market pushed prices down 39 percent. That slide was stopped when the military removed Morsi from the presidency.

A new presidential election in Egypt should take place within months, possibly by the middle of June, and that could set up another big move in stock prices.

Investors considering buying Russian stocks should review the lessons offered by Egypt. Political changes unfold over months to years. Investors will react and overreact to news events, and the size of the subsequent price moves can be significant. However, the risks are high in these stock markets and these investments are only for investors willing to sell when the market turns down.

Russian stocks might be a buy one day, but probably not until the fate of Crimea is resolved.

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MichaelCarr
Russian stocks were about 50 percent below their 2008 highs when Russian forces intervened in Crimea. The Russian stock market sold off even more on that news and the price-earnings (P/E) ratio fell to 6, about one-third the level of the S&P 500.
Russia,Egypt,stock,election
307
2014-17-12
Wednesday, 12 Mar 2014 07:17 AM
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