The Market Vectors Russia ETF (RSX) , the largest and most heavily traded Russia exchange traded fund, followed the broader market lower Tuesday, but the fund has notched an admirable run over the past month.
Add to that, RSX and rival Russia ETFs are seen as beneficiaries of the Federal Reserve’s recent decision to keep interest rates near zero. If markets price in the notion that the Fed will not soon raise rates, that could bring a welcomed retreat in the dollar for RSX.
The combination of a weakening energy outlook and the depreciating currencies are dragging on the ETFs that cover the major exporting countries. For instance, the energy sector makes up more than 40% of the portfolio in RSX. Looking ahead, observers are remain cautious over the market outlook. While President Vladimir Putin and other Russian politicians argue that the worst is over, the economy is expected to remain in a recession for the year. Investors are also expressing concern regarding one of Russia’s worst recessions in the post-Soviet era. [More Issues for Russia ETFs]
“Investors added $35.2 million to the Market Vectors ETF in the five days through Sept. 18, the biggest weekly inflow since mid-July. The price has increased 12 percent from a seven-month low on Aug. 24,” reports Taylor Hall for Bloomberg.
Investors could be looking to target some of the cheapest emerging markets. For instance, Russia is currently the cheapest on absolute terms, with a forward P/E ratio for the MSCI Russia Index at 4.9, compared to its 5-year average of 5.2, according to Capital Economics.
Emerging markets have been pummeled in recent weeks on the weakening outlook for growth and currencies, notably as China’s economy shows signs of slowing down. Additionally, developing markets are also bracing for the eventual Federal Reserve interest rate hike, which could cause greater outflows from the riskier emerging markets.
Russia “is beset by its first recession since 2009 as sanctions including financing restrictions and export bans and a 28 percent drop in crude prices from this year’s high squelched growth, which had already slowed to 0.6 percent in 2014,” reports Bloomberg.
Market Vectors Russia ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.