Shiller likes Greece better than Russia, but he thinks it presents long-term opportunity for contrarians.
Bloomberg reported (January 27):
Nobel Winner Shiller Joins Pimco in Saying Buy Greek Assets
"You can't free yourself from the prison of the zeitgeist unless you become a smart beta person and start mechanically doing investments that don't sound right," said Shiller on Tuesday. It also makes sense to invest in Russian, Portuguese and Italian equities, according to the model, he said.
CNBC reported (January 28):
Shiller sees Greece, Russia investment opportunities
When asked whether he thought that meant investors should buy Russian investments, on a 5- to 10-year basis, he said: "That might be a good strategy.."
He may well be right, but what a strong stomach that would take. Russia is a bad country - highly corrupt, prone to expropriation of foreign oil company assets, prone to jail political opposition and take their assets, actively engages in military conquest of neighbors, militarily fortifying arctic sea region to support very aggressive undersea claims, probing European and US air defenses - while overly reliant on oil and gas exports and currently teetering on recession.
Of course, that has a lot to do with why the valuation of its stocks is so low. If you have 5 to 10 years, as Shiller says (but as very few could endure the drawdowns and volatility along the way); this could be a major capital gains opportunity, if valuations begin to approach world valuation levels.
Caveats and bad news aside. What is so good about Russia?
Star Capital provided these valuation data points for Russia, Greece and Portugal (Shiller's long-term buys).
Clearly, a Russian price to cash flow of 2.7x is attractive relative to an 11.1x ratio for the USA; however, 2.7x is pre-recession data, and 11.1x is for a growing economy. The Russian 10-year CAPE ratio of 4.6x compared to 27.8x for the USA, and 20.0x for developed markets, and 15.0x for emerging markets is appealing.
So, what is actually available within the US to invest in Russia?
There is one mutual fund, a few ETFs and a few individual stocks. Here is the list:
|OAO Lukoil ADR||(OTCPK:LUKOY)||ST|
|Voya Russia A||(MUTF:LETRX)||MF|
|iShares MSCI Russia Capped||(NYSEARCA:ERUS)||ETF|
|Market Vectors Russia||(NYSEARCA:RSX)||ETF|
|Market Vectors Russia Small-Cap||(NYSEARCA:RSXJ)||ETF|
|CTC Media Inc||(NASDAQ:CTCM)||ST|
|Mobile TeleSystems OJSC ADR||(NYSE:MBT)||ST|
Here is how they have each performed over several time periods in tabular form:
Here is how they have performed in chart form over the past year:
Here are yield and valuation multiples for the securities.
Personally and professionally, I would wait a while yet on owning Russia, if at all. What if they counter-sanction by expropriating Russian equity held by US or European investors?
I would also go with a fund or index and not individual stocks due to the high level of issue specific risk individual stocks pose in Russia.
However, if Shiller's recommendation resonates positively with you at this time, these are your options for the most part without getting into some very thin pink sheet stocks.
Disclosure: QVM has no positions in any security listed in this article as of the creation date of this article (January 29, 2015). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, but are compensated retroactively by Seeking Alpha based on readership of this specific article.
General Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.