Why Russia is an Attractive Investment Opportunity

There are many risks associated with investing in Russian equities - but these have made the market cheap and there are some very interesting stock opportunities

Cyrique Bourbon 13 July, 2017 | 11:50AM
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This article is part of the Morningstar's Guide to Emerging Market Investing. Click here to find out just what an emerging market is and which regions hold the potential to boost your investment portfolio.




Cyrique Bourbon: When looking at investment opportunities around the world in equities, we currently find Russian equities as the most attractive market. Russian equities has a lot of negatives attached to it which, obviously, is one reason this market is quite cheap. However, there are quite a few positives when looking at the composition of the Russian market first and how it's evolved over time.

For instance, although the energy sector still represents about half of the MSCI Russia Index, the composition of that energy sector has changed dramatically compared to 10 years ago. Gazprom used to represent about 35% of the Russian Index and it now accounts for about 12%, 13%. A lot of other companies or energy companies, which are high-quality, have actually risen in the index. Worth highlighting as well, outside the kind of energy sector, Russia also has possibly one of the best banks globally, it's Sberbank. So, there are some very interesting drivers that have evolved making Russia definitely a more interesting place to invest now compared to 5, 10, 15 years ago.

Finally, thinking about valuations of the market as a whole, on a simple rule of thumb basis, it appears that when a market trades on dividend yield of about 5%, which is effectively roughly equal to its price to earnings ratio, this tends to be a good indicator for long-term investors, acknowledging that there will be some volatility in the short-term. But thinking about the upside to downside ratio, there is definitely a strong skew towards the upside for this opportunity.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Gazprom PJSC0.00 RUB0.00
Sberbank of Russia PJSC0.00 RUB0.00

About Author

Cyrique Bourbon  is multi-asset portfolio manager for Morningstar Investment Management EMEA

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