Shares of the Market Vectors Russia ETF (NYSEArca: RSX) are off 4.6% Thursday on volume that is already more than 40% above the daily average on news that armed Russian forces continue to gather along the Ukraine border.
Including Thursday’s tumble, RSX, the oldest and largest Russia ETF, has dropped more than 20% in the past month and is flirting with five-year lows. Currently trading around $21, if RSX falls below $20, it will be the first time the ETF has committed that offense since mid-2009. [Russia With No Love as Ukraine Punishes ETFs]
“Although simmering tensions have abated somewhat, an absence of unity among western allies on how to respond to the seizure of the region could embolden Moscow to capture additional territory it deems strategically important to its national interests, which would only worsen the plight of financial markets in the region,” said S&P Capital IQ in a new research note. “Still, military intervention did as much damage, if not more, to Moscow’s markets as it did to those bordering Russia. So, expectations of any additional annexations should encourage further investment outflows from Russian capital markets, the predictable beneficiaries of which would be the refuge currencies of the U.K, Switzerland, the eurozone, and the U.S.”
Although the tenuous situation with Ukraine has adversely affected Russian equities and ETFs, RSX has actually pulled in almost $239 million this month while the iShares MSCI Russia Capped ETF (NYSEArca: ERUS) has seen only modest outflows. That could be a sign investors are finally buying into the notion that Russian stocks are too inexpensive to ignore. However, that faith has not yet been rewarded. [It’s Pricey to Bet Against Russia ETFs]
There are other opportunities in Eastern Europe ETF investors may want to consider.
“Economics alone justifies exposures to Polish equities and holdings in the stock markets of Estonia and Lithuania. Solid prospects for economic expansion speak volumes to the success of Poland’s Prime Minister Donald Tusk and his policymaking team for their astute stewardship of the domestic economy in having engineered the country’s circumvention of the 2008 recession,” said S&P Capital IQ.
The iShares MSCI Poland Capped ETF (NYSEArca: EPOL) and the Market Vectors Poland ETF (NYSEArca: PLND) have traded lower since the start of the Ukraine crisis, which makes sense as Poland shares a border with Ukraine. Still, both ETFs have outperformed broader emerging markets benchmarks this year. The rub, says S&P Capital IQ, is that Polish financials are expensive. EPOL, which S&P Capital IQ rates underweight, allocates nearly 54% of its weight to financial services names.[Poland ETFs Resilient Amid Regional Strife]
S&P Capital IQ has a marketweight rating on the iShares MSCI Emerging Markets Eastern Europe Index Fund ETF (NYSEArca: ESR). ESR is off almost 4% Thursday and trading at all-time lows. The ETF has been plagued by a third of its weight – Gazprom, Lukoil and Sberbank – being among Russia’s worst-performing large-caps since the start of the Ukraine crisis.
iShares MSCI Poland Capped Investable Market Index Fund