Putin's price-earnings ratio

29 May 2007 By Martin Hutchinson

Credit Suisse says that Russian market is a buy, because it s 22% cheaper than the emerging market average. And oil prices could stay high. But that s economics, not politics. Russia violates property rights and is increasingly hostile to the West. Investors should be wary.

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Credit Suisse recommended the Russian stock market on May 24. Emerging market strategist Alexander Redman argued that shares have recently become undervalued. His principle argument is that the Russian market is selling at 10.6 times expected 2007 earnings, a 22% lower multiple than the global emerging markets average of 13.7. Redman also argues that the renewed stability in oil prices helps Russia.

The Kovytka oilfield controlled by TNKBP, BP's Russian joint venture, was audited on May 23 by Russia's Natural Resources Inspectorate, which alleges that BP has not fulfilled its production targets; the partnership is in danger of losing control of the field if the NRI's findings are adverse.

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