If you’re looking for some good returns on your equities, look to the East. Asian stock markets fluctuate daily but it is Russia that stands out from all the rest. Despite the many problems facing the country today--recession, an open conflict with neighboring countries, economic sanctions, ratings downgrades and the sharply declining ruble--the Russian stock market is currently the best performer of 2015.
Russian market exchange traded funds (ETFs), are up 20% this year and 40% from their lows of last December. The country's benchmark stock index has surged almost 27 percent year-to-date, well past the lackluster 2.8 percent rise on the S&P 500, the broadest measure of U.S. shares and the 13 percent rally in the pan-European Euro Stoxx 600 Index.
Buy Russia Now
So if you’re an investor that thinks outside the box and enjoys going against the crowd, it’s not too late to buy Russian. The stock market is still cheap with a price-to- earnings ratio of about 5.
Jim Rogers, an investor and author of “Street Smarts: Adventures on the Road and in the Markets” believes that people “…will look back in five years and say ‘Oh my gosh, it happened again… I have seen this many times. Today’s country that is a disaster, is very different five years from now,” says Rogers.
Rogers has been bullish on Russia for several months noting what he sees as a key change in the Kremlin. He believes that Russia has shifted gears and has chosen to be more open and friendly towards doing business with the West. He cites the country’s commitment to a convertible currency, upgrades to communications and transportation systems and heightened government interest in foreign start-ups and other companies.
James Thompson at MarketWatch agrees with Roger’s bullish attitude. According to Thompson, oil prices are moving back up and energy is vital to Russia’s economy, accounting for 25% of its gross domestic product, 68% of exports and 50% of federal budget revenues.
Some Bears
Not everyone agrees with Thompson, however. Some, like David Stubbs, a global market strategist at J.P. Morgan Asset Management, caution about an escalation of the conflict between Russia and the neighboring Ukraine which has added additional pressure to Russian-European relationships.
Wealth Enhancement Group CIO, Jim Cahn, doesn’t see the conflict in the Ukraine bringing prices down. He cites three possible scenarios. The conflict could continue without escalation; Russian oligarchs will tire of losing money because of sanctions and will pressure Russian President Vladimir Putin to back down; Putin escalates the situation by sending more troops to the area, making it look like he might attack a nearby NATO member.
According to Cahn, part of Putin’s strategy is to use the Ukraine conflict as a way of causing a separation between the U.S. and Europe, and between European countries and each other, by making it appear as if there is a conflict. He believes that Putin will never push things to the point of outright war with the West.
Alexander Branis, director of Prosperity Capital Management, is also bullish on the outlook for Russian equities. "The oil price has stabilized, the ruble is very cheap, so the prospects are quite good (for stocks)," he said on Friday. "Russia is the best performing market this year in dollar terms in the world. So we are up too, in dollar terms."
Some analysts predict that removing existing sanctions against Russia would trigger additional stock market gains. Others are concerned about the possible imposition of even harsher sanctions by the U.S. and Europe for breaches of the February 12th ceasefire in the Ukraine.
Mark Mobius, executive chairman of Templeton Emerging Markets Group: “The problem is sanctions. Many of us are not able to go into the companies we would like to go into, simply because of the sanctions. Once they are lifted, then I think you will see a lot of money going in."
Like it or not, all eyes seem to be on Russia these days. Time to get in?