While we would agree that the price performance of Gazprom’s shares could be in for some near-term volatility, we believe that the current valuation relative to the broader emerging markets might start to point to an opportunity.
WisdomTree Emerging Markets Equity Income Index (WTEMHY): Went Over-Weight Russia for First Time since Its Inception Last Year Based on the 5/31/2012 Index Screening
Historically, the WTEMHY had very little exposure to Russia, given the fact that few Russian companies passed its strict requirements regarding the trailing 12-month dividend yield. Then, at last year’s Index screening on May 31, 2012, a number of the big Russian energy companies qualified due to their positive dividend growth and poor stock price performance. Russian equities became a 13.46% weight—a gain in weight of more than 12%. Performance thus far has been mixed for the Russian companies added at the last annual rebalance: Gazprom has been weak, but the second-biggest Russian company added, Lukoil, has been quite positive.
The WTEMHY identified a valuation opportunity in Russia, just as Jim Rogers is getting interested in Russia because of the low prices of many Russian equities.
Why a Diversified Basket
Investing in single countries involves being concentrated in risks specific to that country. This is why many people use diversified baskets such as the one represented by the WTEMHY, which tries to identify other valuation opportunities (such as the aforementioned Russia example) across multiple countries. Put simply, as of January 31, 2013, more than 86% of the Index’s weight was in constituents outside Russia—even though Russia is over-weight compared to traditional market cap-weighted indexes.
Russia: The Valuation Outlier among the BRIC Countries
Christopher Gannatti is a research analyst at WisdomTree Investments (NasdaqGM: WETF). This post was republished with permission from the WisdomTree blog.
Data sources are WisdomTree & Bloomberg unless otherwise stated.
1Justin Menza, “Short US Government Bonds ‘Right Now’: Jim Rogers,” CNBC, 2/7/2013.
2Roger Nusbaum, “Jim Rogers Is Buying Russia; Should You, Too?” The Street, 2/11/2013.
3Source: Bloomberg
4Source: Standard & Poor’s, as of WisdomTree’s most recent Global Index screening date, 5/31/2012.
5http://www.gazprom.com/investors/stock/, as of 12/31/2011 (most recent report).