Stocks to Buy #5: iShares MSCI Russia Capped ETF (ERUS)
Click to Enlarge Wait? Buy Russia here? It might not be as crazy as it sounds. The fact that Russia has an intrusive government and important structural problems in its economy is well known.
Not for nothing does its market trade for an absurdly low valuation. According to etfdb.com, the price-to-earnings ratios of the three largest Russia ETFs are as follows:
|Market Vectors Russia ETF||RSX||10.42|
|iShares MSCI Russia Capped ETF||ERUS||4.99|
|Market Vectors Russia Small-Cap ETF||RSXJ||4.85|
Notably, the Market Vectors Russia Small-Cap ETF (RSXJ) and iShares MSCI Russia Capped ETF (ERUS) feature the second- and third-lowest valuations of all equity ETFs. As any investor knows, valuation alone isn’t a reason to buy — especially when something’s cheap for a reason. However, it does set up the potential for a possible trade from the long side.
Throughout history, the threat of armed conflict has represented a good time to buy since the actual outcome proves more benign than the initial fears.
This is a risky trade to make, since it’s impossible to say how the Ukraine issue plays out. However, what we do know is that RSX is already discounting a very destructive scenario. If the reality is somewhat more favorable, Russia is a depressed market poised to pop. Traders should keep a close eye on this one — it just might be 2014’s answer to the rally in Global X FTSE Greece 20 ETF’s (GREK) during 2012.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.