Russia has long turned a cold shoulder to foreign investors, relying instead on its resource-rich land. Recently, however, Russia has taken steps to change that by welcoming investor money to develop its technology sector. Russian exchange traded funds (ETFs) may be affected by foreign policy changes.
According to Andrew Kramer of The New York Times, Russian President Dmitri Medvedev “set out on Friday to woo overseas investors at his country’s largest foreign investment forum, a sharp contrast to previous years.”
During the forum, President Medvedev detailed a dramatic policy overhaul “to diversify Russia’s economy away from oil by developing a high-technology sector with foreign investment.”
In order to cultivate ties with Western countries, President Medvedev said “Russia would cut capital gains taxes, reform white-collar criminal law and privatize state enterprises.” [The Vast Appeal of Frontier Market ETFs.]
According to Don Dion of the Street, Russia will also be developing its own version of Silicon Valley- a city that is expected to have its own regulations and tax codes. Supporting that cause, Medvedev said Russia had already “secured a $1 billion pledge from Cisco (NASDAQ: CSCO) over the next decade.”
Although the forum reflected a bright spot in Russia’s efforts to modernize its economy, investors were reminded of why Russia remains a difficult place to invest. On Sunday, 10 people were arrested on charges of long-term espionage for Russia. One of the main targets was a wealthy financier. [Eastern Europe ETFs Primed for Inflows?]
If you are optimistic about Russia’s efforts, then the only real ETF you should invest in is the Market Vectors Russia ETF (NYSEArca: RSX). However, RSX is largely a play on energy prices, which runs contrary to where Medvedev wants to steer Russia. There are a few other ETFs out there such as the SPDR S&P Russia ETF (NYSEArca: RBL) and the Currency Shares Russian Ruble Trust ETF (NYSEArca: XRU). But both have very low trading volume, so be sure to watch the bid-ask spread when trading. [Two ETF Plays on Russia.]
For more stories on Russia, visit our Russia category.
Sumin Kim contributed to this article.