Will Russia’s ETF Suffer Collateral Damage In Wake of Allegations?

July 25, 2008 at 11:00 am by Tom Lydon

Russia’s exchange traded fund (ETF) is trading down early today after the country’s RTS index plunged headlong into a bear market.

The index went into turmoil after Prime Minister Vladimir Putin said OAO Mechel, a metals and mining company, would be investigated for overcharging for raw materials. The 50-stock index fell 21% off its May 19 high, reports William Mauldin for Bloomberg.

One strategist in Russia has gone so far as to say that Russia’s reputation as a safe haven for investors this year is finished in the wake of the allegations and falling oil prices.

Russia is also having a shareholder fight with TNK-BP, BP’s joint venture in Russia. Chief Executive Officer Robert Dudley left the country, citing harassment. His Russian visa was set to expire on July 29, and the renewal was in doubt. The question is, how much control is he going to have trying to run the company from outside the country? BP is worried that shareholders will gain day-to-day control of the company, reports Stanley Reed for BusinessWeek.

Steelmaker and coal producer stocks fell after Putin’s comments.

Market Vectors Russia (RSX) is trading down sharply this morning. Russia had enjoyed a nice ride earlier this year, thanks in large part to oil prices. The ETF was one of the top-performing funds for the month of May.

Earlier this year, we noted Russia’s strong potential could lift it into heavy-player territory. Will it rise above this bump in the road?

Year-to-date, it’s down 10.2%.