U.S.-listed Russian exchange-traded funds experienced some elevated volatility this week as former FBI director James Comey testified in front of the Senate Intelligence Committee. The Trump administration’s potential ties to Russia are still under investigation, but U.S. investors are more concerned with whether or not the sell-off in Russian stocks this year offers a compelling long-term investment opportunity.
The MSCI Russia Index, which measures the performance of large- and mid-cap Russian stocks, is down 12.6 percent so far in 2017. As of late April, investors buying Moscow-listed stocks were paying an average 12-month forward price-earnings ratio of only 5.8, according to Bloomberg. By comparison, Standard and Poor’s 500 Index investors are currently paying a forward P/E multiple of 17.6.
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U.S. investors have several popular Russia-themed ETFs from which to choose. The most popular option is the VanEck Vectors Russia ETF (ticker: RSX), which holds more than $2.2 billion in total assets. The VanEck Vectors Russia ETF currently invests in 29 of the largest Russian companies. Another popular ETF option is the VanEck Vectors Russia Small-Cap ETF ( RSXJ), which is focused only on small-cap stocks.
Kapital Asset Management money manager Vadim Bit-Avragim says that, while Russian stocks look cheap, investors should understand the risks of buying Russian stocks and ETFs. “There are several concerns,” Bit-Avragim says. “Political risk has deteriorated and so has the relationship with the U.S.”
Perhaps the biggest uncertainty of all when it comes to Russia’s economy is the oil market. Earlier this year, Russia passed Saudi Arabia as the largest crude oil producer in the world, and the country’s economy is heavily reliant on crude oil exports.
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“Investors believing oil will go down should stay away from Russian stocks,” Bit-Avragim says.
Just this week, the U.S. Energy Information Administration lowered its 2018 price forecast for Brent crude oil by $1 to $56 per barrel. Crude oil prices have remained depressed despite production cuts from OPEC and several non-OPEC producers, including Russia.
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Russian Stocks Are Cheap, but Buyer Beware originally appeared on usnews.com
