The country's market trades at just six times earnings.
Churchill famously called Russia "a riddle wrapped in a mystery inside in an enigma". Recent investors in the country would be inclined to agree.
Firstly Vladimir Putin brushes aside Dimitry Medvedev, who many saw as Russia's great hope for reform, in the race to become the next president.
Then Medvedev, perhaps to reassert his authority, sacks the highly respected finance minister Alexei Kudrin, who apparently was unhappy to see Medvedev as prime minister.
And all this set against a backdrop where investors are exiting emerging-market shares, Russian strength in commodities is turning into weakness, alongside continued fears about the strength of the global recovery.
Falling and falling
What is the result? Well, the Russian stock market has slumped, with the country's benchmark index, the RTS, currently down 35% from its April high. I must admit I said Russian shares looked cheap in May, but they have, ahem, continued to get cheaper.
So, was I wrong? Is it time to get out of Russia? Is the nation heading for hell in a handbasket?
Well, let's be clear. Investing in this country has always been high risk, and definitely not something for widows and orphans. Volatility is a feature of this market, with wild swings in share prices commonplace.
But investors with an appetite for risk, a stomach able to take the wild gyrations, plus the foresight to have spotted Russia's potential have, in the long term, been amply rewarded. Overall, during the past 15 years, Russian share prices have rocketed. But the ride has been very bumpy.
Valuation is the key
What has always drawn me to the Russian market, and continues to attract me, is valuation.
The trailing P/E ratio of Russia is 6.0. For a country growing at a rate of 4-5% a year, that is astonishingly cheap. In comparison, another fast-growing emerging-market economy with a heavy commodities weighting is Brazil, and that is on a P/E ratio of about 10.
If you examine the prices of several blue-chip Russian companies, the valuations are even keener. For example, Rosneft, the oil company that has recently entered into a collaboration with ExxonMobil (NYSE: XOM.US), is on a P/E ratio of just 4.4.
Meanwhile, gas giant Gazprom is on a scarcely believable multiple of 3.0. Both companies are far cheaper than even the much maligned and out-of-favour BP (LSE: BP).
Why the discount? Well, in a word, corruption, which has become endemic in Russia -- both on the micro level, such as the taking of bribes, and on a higher level of political interference in economic activities.
A fairy story or the truth?
The investing story here had been that Russia was on the way to ridding itself of corruption. An autocratic ruler was giving way to a young protégé, who would set the country on the path to reform and prosperity.
Instead, the story is taking a more sinister turn. Perhaps Medvedev is just the puppet and Putin is the puppet master. Even as president, Medvedev never looked his own man, but seemed just a stooge to Putin.
Somewhere in between
So which is reality, and which is a fairy story? Well the truth, I think, is somewhere in between.
Consider this. Why, if Putin wanted to stay stuck in the past, did he pick as his protégé and confidant a man with a reputation as a strident reformer -- someone who was both liberal and friendly to the West?
Why, when everyone was saying that he would change the constitution to allow him to remain as president, did Putin instead pass the reins of the presidency to Medvedev?
Most experienced Kremlinologists agree that Medvedev was chosen because he represented the ideal compromise -- a trusted ally who could deliver a controlled but significant amount of reform while not threatening Putin's powerbase. And Medvedev has always believed that he was selected to lead reform in Russia.
However, in his time at the helm, Medvedev has had a tendency to talk the talk better than he could walk the walk. And he also lacked that common touch, that ability to connect with the people, which marked out Putin's presidency. Medvedev's popularity ratings have always been way below those of Putin.
It is certainly true that Putin has been pulling the strings, but he has also been rather disappointed in Medvedev, and so he is taking back the reins himself.
So what now?
How will this affect investors? Well, I think corruption in Russia will, unfortunately, remain endemic for many years to come. But to be frank, the biggest factor determining Russia's growth at the moment is not corruption or political shenanigans, but the future of the eurozone. And that is impossible to predict.
But what I do know is that Russian shares are currently very cheap, and, for that reason, I continue to hold.
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