Could Russia’s diplomacy be hurting its opportunities for foreign investors and its exchange traded funds (ETFs)?

The Kremlin admitted that it is, reports Ambrose Evans-Pritchard for the Telegraph. It said that the country’s hard-nose diplomacy and manipulation of the energy sector for political goals deters investors and has left the country friendless.

Finance Minister Alexei Kudrin said that tiffs with Europe and the United States have gone too far. Kudrin acknowledges that Russia is dependent on global economic ties and that the time to safeguard stable investment is now. A former Kremlin official said that Russia needs to think about what its foreign policy is actually costing its economy.

Although the country has the world’s third-largest reserves at $470 billion, officials are still concerned about lurking risks. Companies have had to borrow heavily overseas to raise capital because the internal bond market can’t keep pace with growth. The credit crisis is spreading to the country.

Market Vectors Russia (RSX) is down 8.2% year-to-date. If Russia begins to make nice with other economies, maybe a turnaround is in the offing.

Russia is also a small component of several BRIC (Brazil, Russia, India, China) funds, if you’re seeking more diversified exposure.

• iShares MSCI BRIC Index (BKF)
• Claymore/BNY BRIC (EEB)
• SPDR S&P BRIC 40 (BIK)

Tags: Asia, Brazil, China, Eastern Europe, Emerging Markets, Energy, India, Latin America, Russia

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