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.

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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.)

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