"RUSSIAN RTS INDEX $ ( RTSI$:IND priced in USD)" trades at eight times earning, meanwhile S&P500 has 14.891 (approximately 13-14 P/E for next year). Assume that US Equity market is correctly priced. So, based on the comparative P/E ratio we conclude that investors agree to pay only 54 cents for one dollar of profit. Is it normal? Let's estimate risk premium for some countries.

**Country Risk Premiums. **

First of all we estimate equity risk premium (for US market). Assume that risk premium is 4.67% and expected rate of return on equity is equal 7.51% (free risk "plus" risk premium). [see details and "Implied Equity & Country Risk Premium weekly report"]

At the second we need to estimate country risk premiums. There are many approaches to estimate Country Risk Premium. We use following ones: approach based on Moody's Long-Term Credit Rating, based upon AAA-JPM CEMBI yield spread market volatility adjusted and upon the CDS-rates volatility adjusted. [see details]

Finally we compute required rates of return for some countries (as sum of American equity risk premium and country risk). Results see in following table.

**What does it means? (Instead conclusion) **

Actual current P/E for S&P500 (SPY) is equal 14.891 times earning. Expecting P/E is 13.32. Its very close to some forecasts. Russia (RBL) has 8.22 current and 8.13 estimated P/E. It's close to actual ratio too. *In other words 55 cents for one dollar of current profit in Russia is normal.* Also Hong Kong trades near its P/E estimation.

Following our results, required rates of return on equity are 12.48, 11.61 and 11.5 for Brazil (EWZ, BRF), China (GXC, FXI, PGJ) and India (INDY, INP,PIN, EPI) respectively. Current earn-prices marks are equal 8.02, 6.85 and 5.74. So Brazilian, Chinese and Indian companies should increase their profit. The expecting GDP's growth looks like the great opportunity for companies from these countries to demonstrate the rising of their earning. Otherwise if they will not use it Investors will be very disappointed (it looks very risky). In a nutshell there are no significant upside potential and very weak downside protection at this moment.

**Disclosure: **closely watching RSX, SPY, RBL, EWH