While Russia has long been considered one of the four fastest- growing developing economies in the world, the recent economic crisis may have finally exposed Russia’s weaknesses. But does that necessarily mean that Russia-focused exchange traded funds (ETFs) are a bad bet?
When Russia was listed as a part of the BRICs, an acronym for a group of fast-growing developing countries coined by Goldman Sachs in 2001, it made many promises for future economic growth, development and innovation. Eight years later, Russia’s economy is still heavily reliant on the nation’s rich natural resources, specifically oil and natural gas. [Can Rising Oil Prices Save Russia’s Economy and ETFs?]
Critics such as Stephen Sedgwick for CNBC argue that Russia’s President Dmitry Medvedev is using similar rhetoric as former Soviet Union leader Mikhail Gorbachev of the 1980s. [5 ETFs to Play Eastern Europe.]
Furthermore, Ira Kalish of Deloitte Research says that the reason Russia has done so poorly in recent years is because of corruption, poor governance, government interference in the private sector, and a lack of investment in the oil and gas sector. Major oil and gas players have shied away from Russia because of the challenges of doing business with the country. [Central Bank Lends a Hand.]
For now, Russia seems to be a volatile market, but that doesn’t mean you should steer clear. With any investment, particularly the more risky ones, we suggest having a strategy with pre-set buy and sell points that will help you limit your losses if things take a turn for the worse. [How to Follow Trends.]
- Market Vectors Russia (NYSEArca: RSX)
SPDR S&P Emerging Europe ETF (NYAR: GUR)
Nirav Bhardwaj contributed to this article.
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.