The Contrarian Investment Case for Russian Stocks

Russian stocks, as measured by the MOEX Russia Index, turned positive for the year on Tuesday of this week after plunging 30 percent due to the pandemic. This puts them slightly behind the S&P 500, but did you know that, despite the drama surrounding the annexation of Crimea and volatile oil prices, stocks trading on the Moscow Exchange have beaten U.S. equities for the five-year period? Even when priced in U.S. dollars, the MOEX is up 100 percent, compared to the S&P, up 74 percent as of August 4.

despite drama with crimea and oil prices russian stocks are still beating the S&p 500 through August 2020
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This resilience helps support the idea of wisdom of crowds and the power of contrarian thinking. Think of all the bad press Russian stocks have had to overcome during the past few years, from international sanctions to U.S. election meddling. The MOEX slipped to a four-year low in March 2014 after the U.S. slapped Russia with fresh sanctions for violating Ukrainian sovereignty, after which it followed a mostly upward trajectory until the pandemic put the brakes on the rally.

As former President Bill Clinton once said, “Follow the trendline, not the headline.”

I’m reminded me of a Harvard Business School case study on U.S. health care stocks, which rallied in the early 2010s despite all the negative press and attack ads aimed at Obamacare following its passage in March 2010. According to one estimate, between 2010 and April 2014, the amount of money spent on negative Obamacare TV ads was 15 times greater than positive Obamacare ads—$418 million versus $27 million. Despite this, health care stocks more than doubled over the next five years, while Louisville-based Humana increased a whopping 370 percent.

health care stocks rallied despite negative obamacare ads from 2010 to 2015
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Good investors know how to spot the opportunities, even when (especially when?) the headlines are telling them there are none. Those who snub Russian stocks for that very reason could be leaving money on the table.