It’s Getting Pricy to Bet Against Russia ETFs

March 10th at 7:00am by Tom Lydon

After a tumultuous week that saw major Russia exchange traded funds surprisingly close higher, the options market is providing clues that some traders expect Russia ETFs to decline.

Bearish wagers on the Market Vectors Russia ETF (NYSEArca: RSX), the oldest, largest and most heavily traded Russia ETF, “rose 17 percent this week through March 6 to the highest in almost a year,” report Halia Pavliva and Julia Leite for Bloomberg.

RSX and rival funds such as the iShares MSCI Russia Capped ETF (NYSEArca: ERUS) and the SPDR S&P Russia ETF (NYSEArca: RBL) tumbled last Monday on news of Russia’s invasion of Ukraine. However, RSX would close the week higher despite news that the new government in Ukraine’s Crimea region had voted to separate from the country in hopes of becoming part of the Russian Federation. [No Love for Russia ETFs After Ukraine Invasion]

Russia’s benchmark Micex Index, which suffered through its one-day performance since the collapse of Lehman Brothers, has gotten even more inexpensive, an arguably tall order for Russian stocks, which historically trade at a discount to broader emerging markets indices. [So Many Cheap Emerging Markets]

The Micex trades at 4.8 times earnings, barely more than a third the valuations on Indian stocks and just over half the P/E on Brazil’s benchmark Ibovespa, according to Bloomberg.

Volatility in Russian stocks at the hands of the conflict with Ukraine prompted increase interest in the Direxion Daily Russia Bear 3x Shares (NYSEArca: RUSS) and the Direxion Daily Russia Bull 3x Shares (NYSEArca: RUSL). Both leveraged ETFs saw significant volume surges last week with RUSS gaining almost 4% last Friday on volume that was 42.1% above the daily average, according to ETF Trends data.

“Along with tensions in Ukraine, creation units and trading interest in Russia has increased,” said Direxion. RUSS ended February as Direxion’s top-performing triple leveraged bearish ETF and saw modest creation activity last Friday, according to issuer data. [Traders Flock to Leveraged Russia ETFs]

Despite the tumult, RSX took in over $149 million from Feb. 28 through March 6 while ERUS also saw modest inflows.

Market Vectors Russia ETF

ETF Trends editorial team contributed to this post.

 

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.