Shares of the Market Vectors Russia ETF (NYSEArca: RSX) slid 2.4% Friday to the fund’s lowest level in five weeks after Standard & Poor’s lowered its rating on Russian sovereign debt to BBB-, the lowest investment grade.
It is the first time the ratings agency has downgraded Russia since 2008. Russia joins Brazil and India as BRIC nations with credit ratings just one step above junk. S&P lowered Brazil’s sovereign rating to BBB- last month. However, S&P raised its outlook on Brazilian debt to stable from negative, which implies further downgrades from the ratings agency are unlikely in the near-term. [Brazil ETFs Deal With Ratings Downgrade]
With Russia, S&P lowered its outlook to negative, implying further downgrades are possible if already slow economic growth continues to be hampered by the ongoing conflict in Ukraine.
“The tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P said in a statement obtained by Bloomberg.
The iShares MSCI Russia Capped ETF (NYSEArca: ERUS) is also off more than 2% at this writing. Earlier this week, amid reports that pro-Russia militant groups remain active in Eastern Ukraine, Russian stocks and exchange traded funds slid and have been seen bleeding cash. Since April 15, RSX and ERUS have lost $39.7 million and $34.5 million, respectively. [Ukraine Saga Pressures Russia ETFs]
Russia’s central bank raised interest rates to 7.5% Friday in an effort to stem inflation that has been rising since the start of the Ukraine conflict. S&P said that $51 billion left Russia in the first quarter, a figure close to the annual average over the past five years and the ratings agency expects the country’s current account surplus to evaporate next year, CNN reported.