Posted August 31, 2014 7:29 pm by Comments

FE Trustnet has quoted Coutts & Co’s chief investment officer Alan Higgins as saying that the latest falls have brought Russian stocks down to a valuation where they can be considered “attractive:”

“Russian equities have long been cheap, reflecting political risks and perceptions of corruption, but the current earnings valuation (price/earnings ratio or PE) based on forecast earnings of around 4 is low even by historical standards… It’s also the lowest it’s been since the credit crisis. Cyclically-adjusted PEs are lower relative to the MSCI World index than during the credit crisis. Comparing asset-based valuations, price-to-book (PB) is also low for Russia at 0.7, while MSCI World trades on a PB of 2.1 and PE of 15.”

Higgins also commented that the Russian stock market’s average dividend yield stands at a historical high of 4.8% verses the MSCI World’s 2.6% plus the dividend cover for Russian stocks is “very high in a global context” as Russian businesses remain cash rich in general while their profits appear to be stabilizing.

As for risk, Higgins observed:

“A major escalation of the crisis cannot be ruled out but there are significant incentives for Russia and the West to resolve their differences. Most notably, several European countries – including Germany and Italy – remain heavily dependent on Russian energy, while Russia is heavily dependent on Western capital.”

“We believe the potential for a re-rating of Russian equities over the next three to five years outweighs the risk of further near-term volatility. Markets historically perform well when geopolitical tensions ease.

“Even if forward PEs – ie based on forecast earnings – were only to return to around six, which is their average since president Putin came to power, that would still represent significant upside.”

To read the whole article, Is it time to buy Russia funds or are they still too risky?, go to the website of FE Trustnet.

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