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Attacks reignite debate on Russia investments

CNBC

Russia has long faced challenges assuring would-be investors about its stability relative to Western and Asian nations, or even among other emerging markets. Now a series of terrorist attacks could make that challenge worse.

Two bombing attacks over a 24-hour period this week killed at least 33 people and have heightened worries that Russia may face further strikes leading up to the Sochi Winter Olympics, scheduled to begin in early February.

Alexander Kliment, emerging markets analyst and director of Russia at Eurasia Group, said that the attacks, if they continue, are likely to negatively affect investor perceptions on Russia.

“A certain amount of volatility and violence has been the norm in the North Caucasus,” he said. “However, if we see sustained violence outside of North Caucasus—in ‘European Russia’—that could scare investors and have an adverse effect on funds’ decisions.”

The attacks raise bigger questions about stability in Russia and how much ability President Vladimir Putin really has to control such situations, Kliment said.

Russia already faces low stock valuations compared with other industrialized nations. Russian stocks typically trade at below six times earnings, making the country one of the cheapest emerging markets. The S&P trades at a price-to-earnings ratio of 16.6 as of Tuesday.