Trading The Globe: To Russia With Love

By Tim Seymour

The new Russian economy is coming along by leaps and bounds and it looks like President Obama is doing everything he can to keep the entente thriving. We talk about the factors driving today’s Russian market in today’s Trading the Globe.

It seems that Obama definitely loves Russia. He wants to continue to deepen the U.S.-Russian relationship. So does Vladimir Putin.

The alliance may not be terribly popular at home in either country, but it is necessary. Russia is eager to broaden its economy beyond the boom-and-bust oil cycle. The United States is eager to keep global oil markets on an even keel while ramping up new technologies to support a post-petroleum energy infrastructure.

Both countries are technology leaders. Russia’s “Silicon Valley” initiative in Skulkovo has given the country’s programming talent — among the world’s best — a home. This is where Dmitry Medvedev’s hopes for a non-industrial, non-commodity economic framework for the country are pinned.

Meanwhile, joining the World Trade Organization gives Russia a new lease on finding a role in the global marketplace. The World Bank says this will upgrade GDP expansion rates in the country to levels well beyond the growth China currently presents to investors.

Someone can go into Russia via one of the big ETFs like ERUS or RSX but these are practically commodity funds with a currency twist. Once you take out energy, raw materials and giant lender Sberbank (SBRBF.PK), ERUS, the newer of the two portfolios, has barely 22% of its holdings left to cover the rest of the Russian market.

Instead, the quickest way to get focused exposure on the “new” Russia is dot-com stock Yandex (YNDX), better known here as “the Google of Russia.” YNDX is increasing its leadership in its native country with a full 59.5% share of Russian search. Google (GOOG), meanwhile, keeps declining.

On an emerging markets comparison, YNDX also trades fairly cheap. We are looking at 16 times enterprise value divided by EBITDA here, versus a full 29 times EV/EBITDA for China’s favorite Baidu (BIDU).

And YNDX is growing fast: 33% EBITDA expansion this year is not bad at all.

For a slightly more obscure take on Russia, look at CTC Media (CTCM), which arguably offers the most upside in the country.

If YNDX is the “Google” of Russia, CTCM is the Viacom, pumping out independent entertainment content and advertising throughout its home market.

Right now, the stock is cheap at barely 12 times earnings — compared to a historical average P/E around 19 — and now that its ownership issues have been clarified, it looks ready to run.

Source: Trading The Globe: To Russia With Love