Russian property has the lowest price-to-earnings ratio of the four BRIC countries. With its strong oil and gas industry, and close proximity to energy hungry China, Russia may provide strong returns to investors willing to deal with higher risks and volatility, in exchange for long-term gains. See the following article from International Living for more on this.
Spies in suburbia…that’s the biggest Russia story we’ve read in years. But there’s another, better one the mainstream press hasn’t noticed.
It has to do with price-to-earnings (P/E) ratios in Russia. This ratio is just a handy way of seeing how much investors are willing to pay to own the future earnings of a company or stock index.
If there is strong profit-growth potential, but the P/E is low, then you could get in cheaply.
When you look at this factor, Russia looks remarkably good. And that makes it a strong target for investment over the long term. Let me explain…
You’ve probably heard of the “BRICs” before: Brazil, Russia, India and China. These are reckoned to be the economic powerhouses of the future. The four countries, combined, currently account for more than a quarter of the world’s land area and more than 40% of the world’s population. Let’s look at them one at a time, starting with the most expensive.
First up: India. P/E of 21 times. I like India and think it has great growth prospects. For starters it has a young and fast-growing population. But I reckon there will be a better entry level. For example, if there is another general global risk sell off by investors later this year or early next year.
Next: Brazil, at 15 times P/E. Brazil is a commodities powerhouse, and also has a young and growing population. It’s not super cheap, but not particularly expensive either. Ok for a long-term investor.
Then China at about 14 times P/E. China sure has its economic issues, not least property-price bubbles in some of the larger cities. But right now I’d say that the U.S. and France have far more of them. And those markets both have higher P/E ratios—nearly 17 times.
But Russia trades at a P/E of just 9 times. This kind of single-digit P/E is what you might expect toward the end of a bear market. Put another way, the price builds in little or no profit growth potential.
But this is a market dominated by the oil and gas industry. Gazprom alone, the state-controlled gas giant, makes up around 15% of the market value.
Although natural gas prices in the U.S. have been pretty depressed recently, Russia is piping more and more of its gas to energy hungry China. Gas is attractive to China, as it is a lot cleaner than the coal they’re currently using as a main source of energy.
The Russian president, Dmitri Medvedev, says he wants Russia to be welcoming to foreign investors. Low prices strike me as being the best welcome available.
But beware. Investing in Russia is not for the faint hearted. Volatility can be savage. But if you invest for the long run, you could make very good money here.
This article has been republished from International Living.