Q. Is Russia a good place to invest now?
A. Overseas investing can mean big profits, but not without risk.
Russia, specifically, falls into that category.
From a fundamental standpoint, the country proves that it has the potential to be a solid investment, said Cynthia Aiken, a certified financial planner with RegentAtlantic in Morristown.
“Since devaluation of the rouble and Russia’s financial crisis in 1998, growth in Russia has increased steadily to keep relatively on par with other dominant emerging markets such as Brazil, India and China,” Aiken said.
For example, she said, the MSCI Russia Index (RUB) has earned almost 25 percent a year since its inception in 1995, which is 5.2 percent per year higher than its asset class benchmark (MSCI Emerging Markets).
With a current price to earnings ratio of 7.6, Russian equities are very attractively priced going forward, Aiken said.
Among Russia’s biggest advantages are that it has a growing, highly educated population and resource-rich lands, said Alex Coriddi, a wealth advisor at RegentAtlantic.
He said Russia has one of the largest populations in the world – around 150 million people – many of whom have been getting slowly wealthier for the past decade and are spending an increasing amount of their income on luxury goods, services and holidays.
“As Russia makes significant strides to tap into its natural resource pool and implements policies to reduce disparity, per capita growth is likely to show improvement as well,” he said.
Coriddi said plentiful natural resources represent Russia’s biggest draw for investors, noting that oil and gas play a major part in the Russian economy in terms of production for internal purposes and exports.
“That being said, energy and minerals are part blessing, part curse. Russia’s heavy dependence on resources represents a risk,” he said. “When you invest in Russia, you have to keep in mind the direction of commodity prices.”
Aiken said this high level of potential return comes with a high level of risk.
She said the Russian equity benchmark is approximately 24 percent riskier compared to its asset class benchmark (ACWI Emerging Markets). And in the recession of 2008, to dropped 76 percent in only five months.
“Baked into this risk is the uncertainty surrounding the country’s political corruption and lack of governance,” she said. “According to the 2017 Corruption Perceptions Index reported by Transparency International, Russian is the 40th most corrupt country in the world out of 175 total countries.”
Coriddi said as investors seek investment opportunities around the world, they need knowledge of the national risks that may threaten their investment.
“We all know that the high returns come from high risk investments and emerging markets are the likely area to find returns that outperform those of the developed nations,” he said. “While Russia offers high returns, it is dominated by energy companies, the state of regulations is still under development, and there are political risks that are larger in that country than others.”
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