Buffett Indicator: Russia Stock Market Valuations and Expected Future Returns

Updated at Sun, 09 Aug 2020 20:30:08 -0500
Country: Russia (updated daily) check out Global Overview for detailed methodology.

The Stock Market is Fair valued.

Ratio of total market cap over GDP: Recent 10 Year Maximum - 64.85%; Recent 10 Year Minimum - 30.46%; current - 46.97%
Expected future annual return: 10.6%

ETF Used for dividend yield: ERUS (Yield=6.5%)
Market Index used: MOEX Russia Index
Current Annual GDP: $1,480 billion US dollars or 109,097 in billions of national currency (GDP in Local Current Prices Annual Growth=5.4%)
Data since year 1997


Russia Historical GDP Growth

Historical GDP of Russia in billions of national currency. The GDP in local current prices has grown at the annual rate of 5.4% over the past 8 years. Please note this growth rate includes the effect of price inflation and it is NOT the real GDP growth rate. Current Annual GDP: $1,480 billion US dollars or 109,097 in billions of national currency.

Russia GDP (Billion, National Currency)

Historical Stock Market Cap

Historical total market of Russia in billions of national currency. This value is normalized using the data published by WorldBank. MOEX Russia Index is used for the normalization. The MOEX Russia Index (Russian: Индекс МосБиржи), formerly MICEX Index, is the main ruble-denominated benchmark of the Russian stock market. The index was established on 22 September 1997, and has the same composition as the dollar-denominated RTS Index.

Russia Total Market Cap (Billion, National Currency)

Historical Ratio of Total Market Cap over GDP (%)

The current ratio of total market cap over GDP for Russia is 46.97%. The recent 10 year high was 64.85%; the recent 10 low was 30.46%. If we assume that the ratio will reverse to the recent 10 years mean of 42.4% over the next 8 years, the contribution to expected annual return is -1.27%. This is the detailed historical chart of the ratio.

Russia Ratio of Total Market Cap over GDP (%)

Based on these historical valuations, we have divided market valuation into five zones:

Ratio = Total Market Cap / GDP Valuation
Ratio ≤ 30% Significantly Undervalued
30% < Ratio ≤ 38% Modestly Undervalued
38% < Ratio ≤ 47% Fair Valued
47% < Ratio ≤ 55% Modestly Overvalued
Ratio > 55% Significantly Overvalued
Where are we today (2020-08-09)? Ratio = 46.97%, Fair valued

Predicted and Actual Returns

From the equation presented on the U.S. market valuation page,

Investment Return (%) = Dividend Yield (%) + Business Growth (%) + (Re/Rb)(1/T)-1

We can compute the predicted and actual returns of the Russia stock market over a given time period, T. In the calculation, we set T to equal eight years, the approximate length of a full economic cycle. The calculated results are presented in the chart below. The green line indicates the expected, or predicted return if the market ratio trends near the recent 10 years average ratio of 42.4% over the next eight years.

The blue line indicates the actual, annualized return of the Russia stock market over eight years. We use “MOEX Russia Index” to do the actual return calculation. We can see the calculations largely predicted the trend in the stock market as the blue line is closely parallel to the green line.

Predicted and Actual Returns of Russia

Conclusion

The stock market of Russia is expected to return 10.6% a year for the coming years. This is from the contribution of economic growth in local current prices: 5.4%, Dividend Yield: 6.5% and valuation reverse to the mean -1.27%.

This is the projected return of the stock market in Russia relative to other countries. Click on each bar in the chart to go to other countries:


You can go here to see what international stocks Gurus are buying.

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