Emerging markets have provided investors with ample
disappointment this year and the BRIC nations have been among the
ringleaders when it comes to developing world negativity.
While some members of the quartet share discouraging traits in
common, stocks in each country have also been plagued by various
In Russia, a slew of dividend disappointments have weighed on
stocks there and hampered the government's goals of attracting
more foreign investors to the oil-rich country. To be clear,
Russia's dividend disappointments do not necessarily mean cuts or
suspensions. Rather, the consternation for investors comes from
the reluctance of Russia's state-controlled enterprises to go
along with President Vladimir Putin's demands that these
companies would start paying out 25 percent of their net income
in dividends this year.
A frequently used selling point for Russian equities is that
), the largest Russia-specific ETF, had a P/E ratio of about five
and a price-to-book ratio of just 0.44 as of May 31. The iShares
MSCI Emerging Markets Index Fund (NYSE:
) has a P/E of 18 and a price-to-book ratio of three.
Valuations have not been enough to lure buyers to Russian
. Not at a time when emerging markets equities are being pounded
and Russia's highly profitable state-run companies are rebuffing
Putin, a leader accustomed to getting his way. Putin was
successful in getting OAO Rosneft, Russia's largest oil company,
to go along with the 25 percent of net income as dividends
However, Gazprom, Russia's state-controlled natural gas
monopoly is only paying a dividend that equals 25 percent of last
year's profits using an accounting gimmick. Other companies are
resisting the 25 percent of net income dividend plan as well.
Sberbank and VTB Bank OJSC are planning dividends that amount to
17 percent of net income
Those four stocks combine for about 23.6 percent of RSX's
weight and 37.4 percent of the iShares MSCI Russia Capped Index
) weight. The average 30-day SEC yield on the two ETFs is about
2.5 percent, or almost 10 basis points less than what investors
will get on 10-year U.S. Treasurys.
For his part, Putin is not letting Russian companies skirt the
25 percent rule forever. Starting in 2014, the prime minister's
approval will be needed to exempt companies from a payout
equivalent to at least 25 percent of profit under international
Bloomberg reported, citing Russian Deputy Prime
Minister Igor Shuvalov
The objective is to make Russian state-controlled companies
more attractive to foreign investors as the Kremlin prepares to
pare its stakes in banks, oil companies and others.
Should the plan prove successful, investors that do not want
the commitment or risk of a Russia-specific ETF bet should
consider the WisdomTree Emerging Markets Equity Income Fund
). Russia is DEM's largest county weight at 18.5 percent, by far
the largest allocation to the country of the major diversified
global emerging markets ETFs. Four Russian companies are found
among DEM's top-10 holdings. Rosneft and Gazprom are the ETF's
top-10 holdings combing for 9.2 percent of the fund's weight.
For more on ETF's click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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