When Goldman Sachs’s Jim O’Neill first coined the term ‘Bric’ seven years ago, he probably didn’t actually know his Rio de la Plata from Brahmaputra. After all, he hadn’t been to most of the countries the term refers to: Brazil, Russia, India and China. Now, thanks in part to the fact that stocks in all four have rocketed 70% in the last two years, he visits them all at least once or twice a year.
However, this year it might be no surprise if he were to cut down on his airmiles. The Chinese and Indian markets are down 34% and 15% respectively since January as the credit crunch has raised risk aversion across the board. And while Brazil’s Bovex Index is up on the year, on a p/e ratio of 17 times, it isn’t cheap. Indeed, only one of the Brics is at once cheap and still rising: Russia (on a p/e of 13 times and up 2.3%).
So is Russia now worth a look? Owen Matthews, writing in Newsweek, isn’t convinced. The economy might look good with its 7% growth rates, he says, but in truth it is no more stable than a bouncy castle: it is only energy and commodity prices ‘that keep it inflated’. And given its resources as the world’s biggest energy exporter, it should be growing at more like 14% than 7%.
That may be so, but on the plus side, Russia might turn out to be something of a safe-haven hiding place from the credit crunch. ‘No one has credit cards here,’ says Robin Geffen, manager of the Neptune Russia and Greater Russia fund in the FT. ‘It is a cash economy, mortgages are in their infancy.’ Given this, growth averaging 7.5% over the past eight years isn’t bad at all. Note too that it’s ‘one of the few countries in the world with a fiscal surplus,’ says Allan Conway of fund manager Schroders in The Daily Telegraph. Corporate earnings look good too: they are rising 18%-20% a year.
‘Having so much oil and gas is an incredibly stable anchor,’ says Gary Potter of fund manager Thames River in the FT. Indeed, Russia boasted a trade surplus of $72.5bn last year on the back of it. Add all this good news to low share prices, says Geffen, and it’s a good time to get in. Exchange-traded funds include the Lyxor Russia ETF (total expense ratio, or TER, of 0.65%), while investors can also avail of managed funds from JP Morgan Russian Securities, up 361% over three years (TER 2%), and Neptune Russia and Greater Russia fund. It’s up 268% over three years and has a TER of 1.75%.