By Sara Sjolin, MarketWatch
Russian stocks anyone? Or how about the underperforming European telecom sector? Maybe even some U.S. Treasurys?
With investors shaken after weeks of geopolitical uncertainty, Morningstar Investment Management has compiled a list of unloved investments, including the ones above, that could deliver profits in the long run to traders able to tune out the noise.
Here’s a rundown of the five ideas:
1. Russian equities
Russian assets have taken a beating this month, hit by news of U.S. sanctions. This week brought reports that the U.S. was planning to slap another round of sanctions on Russia, targeting companies tied to the Syrian regime and its chemical weapons. No additional sanctions have been announced yet, but uncertainty still hangs over the country’s stock market. However, that could turn out to be your big opportunity, according to Dan Kemp, chief investment officer of EMEA at Morningstar Investment Management.
“Societal concerns aside, we see an opportunity to benefit from Russian anxiety. Specifically, we continue to look favorably on Russian equities, especially relative to many of the expensive developed market peers. We have witnessed a gradual improvement in earnings, cash flows and dividends — all growing faster than western peers in nominal terms,” he said.
The VanEck Vectors Russia ETF /zigman2/quotes/200464876/composite RSX +0.65% has lost 4.5% over the last month, while the RTS Index — a gauge tracking Moscow-listed stocks — is down 6.2%.
2. U.K.’s FTSE 100
U.K. stocks have been whipped around by uncertainty over Brexit and the recent rally in the pound /zigman2/quotes/210561263/realtime/sampled GBPUSD 0.0000% , with Britain now the least-popular country market for European investors, according to the most recent Bank of America Merrill Lynch fund manager survey.
Kemp from Morningstar, however, pointed out that the uncertainty is overhyped, “creating the cornerstone of a contrarian opportunity” for the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +1.12% .
“The first thing to acknowledge is that the U.K. economy is not the U.K. equity market. For example, approximately 70% of the FTSE 100’s earnings come from overseas, and one must appreciate that the fundamentals of corporate Britain have been reasonably resilient,” he said.
“If anything, earnings of the FTSE 100 have actually started to rebound through 2017 and early 2018 after steadily falling by as much as 20% in the five years prior. This is a long-term development that must be reinforced.”
The British blue-chip has regained some vigor in recent days, rallying after disappointing U.K. inflation and wage data yanked the pound lower.