ETF Trends
ETF Trends

As Russia is hit by an economic downturn, the dilemma the country now faces is whether the economy and its subsequent exchange traded fund (ETF) would see a relatively moderate recovery or continue to stagnate.

After Finance Minister Alexei Kudrin stated that Russia energy-reliant economy would still sag if oil rose to $55 a barrel, Economic Development Minister Elvira Nabiullina reacts by saying growth is possible even with oil prices at $50, according to the International Herald Tribune.

Kudrin does not see Russia’s budget revenues rising for at least three years while Nabiullina thinks the economy will show moderate growth in 2010 if nothing detrimental does not happen. Forecasts show a drop by 30% in Russia’s budget deficit, which leaves the country with a budget deficit of 8% of GDP. Last month, the economy shrunk by 8.8% compared to the same month in 2008.

Foreign investment dropped 14% in 2008, to $104 billion, and Russia’s stock benchmarks plummeted 80% from their last year’s highs. The ruble lost one-third of its value since September, but oil companies have gotten a $22 billion boost to their revenues because of a devalued ruble.

The Finance Minister has announced government aid for the weapons industries. Banks will provide the loans to 68 troubled enterprises. This is not a moment too soon, as some 30% of the industry are on the brink of bankruptcy.

  • Market Vectors Russia ETF (RSX): down 2.3% in the last month; down 16% in the last three months; the fund is weighted 38% in the energy sector

ETF RSX performance

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.