Market Vectors Russia ETF (RSX)
The first is obvious: the Market Vectors Russia ETF (RSX).
I should be clear: No one in their right mind would make a long-term investment in Russia. It’s a corrupt petrostate with no credible rule of law and, at times, an open hostility to Western free-market capitalism.
But while Russia is an awful investment, I consider it an attractive short-term trade, and there are some ETFs — like the RSX — that make it easy to do that. Russia is one of the cheapest markets in the world. By Financial Times estimates, its stocks trade for just 4.9 times earnings — earnings, by the way, that are already depressed by years of sagging gas prices.
Russian stocks generally sell at a large discount to other major markets due to the perceived risks involved, as rightly they should. But at less than five times earnings, they are now dirt-cheap, even by Russian standards.
I expect Russian stocks to enjoy a sustained relief rally that sees them rise by 20% to 25% over the next quarter. But, as I wrote in January, a bet on Russia is essentially a bet on energy prices.
And seeing how non-traditional production has made the U.S. the world’s largest oil producer, and how new oil and gas discoveries in Argentina, Brazil and the eastern Mediterranean (among others) promise to flood the globe with cheap energy for the foreseeable future, a bet on higher energy prices is not one I care to make.