Tags: Russia | Stocks | Value | Investors

Russian Stocks Are Attractive to Value Investors

By    |   Wednesday, 20 August 2014 07:59 AM

Value investing is one of the most popular and successful approaches for long-term investors. Investors using this philosophy like to buy when stocks have low price-to-earnings (P/E) ratios or are undervalued by some other valuation tool. Studies have shown that value methods can be applied in any country and Russia has now reached a level of value rarely seen in the entire history of global stock markets.

The P/E ratio on iShares MSCI Russia (ERUS), an ETF that tracks Russian stocks, has fallen to 5. For comparison, the P/E ratio of the stocks in the S&P 500 index 17, a value near the historical average. Compared to the U.S. stock market, Russian stocks look cheap.

P/E ratios on an entire stock market rarely fall to 5. One study found this happened about 1 percent of the time. On average, stock markets gained 35 percent in the year after reaching this level.

Russia may appear attractive based on its fundamentals but those fundamentals do not include the possible impact of sanctions. Russian companies may see earnings decline without access to European and U.S. markets. If that happens, stock prices are likely to fall even further.

Value investors often apply rules in their approach, an idea that can be dangerous when political events are driving the stock market. In the case of Russia, stocks are likely to fall further if the situation in the Ukraine escalates. Investors should wait for peace prospects to improve before rushing into the market. There will still be time to profit from a rebound in the market at that point and there will be significantly less risk.

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Value investing is one of the most popular and successful approaches for long-term investors.
Russia, Stocks, Value, Investors
Wednesday, 20 August 2014 07:59 AM
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