Scared to invest in Russia?

Posted on Wednesday, September 10th, 2008 | In Russia

Contributed by: Jim Musselwhite (http://www.straightstocks.com) -

While the invasion of Georgia, along with Putin’s continued zealous nationalism, has triggered fear from foreign investors of an increasingly depressed Russian market, things aren’t nearly as bad as they may seem. Indeed, it may be an optimal time to invest in Russia, according to several money managers.

Who’s investing in Russia?

Many money managers and Russian experts are certain that as fears are assuaged money will flow back into the Russian market, and stocks will rise. Those who invest in Russia early on, will then cash in.

Portfolio manager John Connor suggests others invest in Russia. He reports that he has recently increased holdings in Russia by 50%, taking full advantage of the massive recent sell-off and says, “There are tremendously undervalued positions in Russia”. Continuing to beat its three- and five-year benchmark, Connor’s Third Millenium Russia Fund (TMRFX) is running strong.

The Russian economy has been growing at a rate of 7-8% per year. The Russian market traded recently for a mere 7.3 times 2009 earnings, though earnings are projected to grow 20% next year. The S&P 500 Index, by contrast, trades for 11.6 times 2009 earnings, which is more costly by this common value gauge. This seems a solid reason in itself to invest in Russia.

Reasons not to be scared off from investing in Russia

Though the political issues in Russia may take some time to cool off, tensions between the nation and the West will most likely not escalate from where they have been recently. Both Obama and McCain have less allegiance to U.S. foreign-policy hardliners and Russia values its economic growth through trade and certainly doesn’t desire serious confrontation with the U.S. or Europe.

Despite accusations and fears of government-dictated prices, many experts are maintaining that investing in Russia is still a good idea, as these more recent events are not likely to continue. Christopher Smart of the Pioneer Emerging Markets Fund (PEMFX) says, “The questions related to Mechel are limited and resolved, and I don’t see widespread price controls”.

Commodities may continue to fall before they turn around again, so for long-term investors with at least a year to let East-West tensions die down an easy way to invest in Russia now is to buy exchange-traded fund Market Vectors Russia (RSX) or RidgeWorth International Equity Fund (STITX).