Despite the general optimism bestowed upon emerging markets, Russia seems to be the baby being thrown out with the bath water. As one of the four BRIC nations - Brazil, India, and China are the other three - Russia has always been perceived as the riskiest of the four. There are good reasons why, but Russia's current valuations may make it too cheap to pass up for investors wanting a piece of emerging market growth.

IN PICTURES: 10 Options Strategies To Know

Oil, Oil, Oil
The Russian Micex Index stands at approximately 1550 and in the most recent year, the index companies earned 178 rubles a share, valuing the index at less than eight times earnings. Based on analyst projects, the Micex Index is valued at under seven times 2011 earnings. Part of the valuation is in large part due to oil averaging $80 a barrel. Gazprom (OTC: GZPFY), the Russian oil giant, is Russia largest listed company. Lukoil (OTC: LUKOY), another Russian oil giant, also constitutes a large part of the Micex Index. Thanks to a strong oil price, they both trade at some of the lowest P/E multiples of any emerging oil company.

Lukoil currently has a P/E of six while Gazprom trades at 6.5 times earnings. Compare that with PetroChina (NYSE: PTR) and Petrobras (NYSE: PBR), the large state owned oil companies of China and Brazil that are valued at 12 and eight times earnings, respectively.

Buyer Beware
To say that Russia is volatile is an understatement. And most investors understand the political risk of investing in the nation. In 2006, the Micex Index was up nearly 70% and in 2008 cratered nearly 70% as the world financial crisis sent oil prices below $40 a barrel. Investing in Russia requires a leap of faith. Russia is also considered one of the weakest of the four BRIC nations structurally, but the country's assets are clearly worth something. With lots of investment capital heading to places like China and Brazil, Russia gets pounded. But if that capital starts leaving China in search of cheaper emerging markets, Russia will likely be tops on the list for many.

For most investors who wish to consider investing in Russia, ETFs are the way to go. The Market Vectors Russia ETF (NYSE: RSX) trades at nine times earnings and offers exposure to Russia's largest enterprises including Gazprom and Lukoil. Aside from that smaller closed end mutual funds such as the Templeton Russia and East Europe (NYSE: TRF) may be of interest to some investors.

The Bottom Line
Despite the attractive valuation, investing in Russia carries risks that render any valuation meaningless. Having said that, some investors may wish to consider Russia's attractive valuation parameters when looking at emerging markets. (For related reading, take a look at A BRIC Investor's Wall of Worry.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  6. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  7. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  8. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  9. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  10. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center