Since declining by nearly 75% in 2008, Russia has shown a quick turnaround in 2009. Lingering problems, however, still impede the recovery of the country’s economy and related exchange traded funds (ETFs).
Russia’s GDP is expected contract 7.5% this year, and the government is forecasting 2% growth in 2010 while many independent economists are estimating growth of as much as 5% next year, reports Jason Bush for Forbes. (Stumbling blocks for Russia’s growth).
Russia’s economy grew 0.6% in the third quarter from the previous three months, but GDP was 9.4% lower than last year’s levels, writes Nataliya Vasilyeva for BusinessWeek. The Economic Development Ministry stated that the improvements were attributed to less capital outflow and to companies replenishing stocks.
Manufacturing and agriculture have been the main industry drivers, with agricultural activity increasing by 10% and industrial production increasing by 5.1%. Retail sales diminished 9.9% on the year in September. (Four things going for Russia).
The downturn hit Russia hard for three primary reasons, Bush at Forbes says. These are reasons to use caution when investing in Russia and to have an exit strategy in place. (How to follow trends).:
- One reason is oil prices – they plummeted, and Russia plummeted along with it. They recovered somewhat, and so did Russia.
- Another reason is their companies’ idiosyncrasies, which include holding copious stocks of inventory and engaging in cost-plus accounting, which means companies initially resist price cuts by reducing wages. These two reasons helped explain why Russia’s output plummeted early in the downturn. (Ways to play oil and Russia).
- Furthermore, Russia’s financial sector is still struggling and bad loans are expected to reach 20% by the end of the year.
For more information on Russia, visit our Russia category.
- Market Vectors Russia ETF (NYSEArca: RSX): up 119.9% year-to-date
- iShares Emerging Markets Eastern Europe Index Fund (NYSEArca: ESR): down 8.4% in the last week, recently launched; Russia is 75%
- SPDR S&P Emerging Europe (NYSEArca: GUR): up 68.5% year-to-date ; Russia is 65%
- Dow Jones Emerging Markets Energy Titans (NYSE: EEO): up 5.9% in the last three months; Russia is 36.3%
Max Chen contributed to this article.