It’s Getting Pricy to Bet Against Russia ETFs

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.