Despite some of the lowest valuations in the developing world, headline risk has kept some global investors from embracing Russian equities this year.
While the risks are not fading, investors’ unwillingness to build positions in Russian stocks and exchange traded funds appears to be as the Market Vectors Russia ETF (NYSEArca: RSX) is on a torrid asset-gathering pace this month.
RSX, the largest and most heavily traded Russia ETF, “attracted $199.3 million this month through Aug. 26,” putting the ETF on pace for its best month of adding assets since March, reports Halia Pavliva for Bloomberg.
Investors have also put about $4.5 million into the iShares MSCI Russia Capped ETF (NYSEArca: ERUS), the second-largest Russia ETF, this month. Inflows to Russia ETFs come after two major index providers, MSCI (NYSE: MSCI) and Standard & Poor’s, considered removing Russian stocks from some of their indices. [S&P Consults Clients on Russia Indices]
Although RSX has traded lower over the past two days, the ETF has recently been strong enough to send some short sellers scampering for cover. Short interest in RSX “was 5.5 percent of outstanding shares as of Aug. 26, the lowest in a month, according to data compiled by Markit, Bloomberg reported. Over 21% of the ETF’s shares outstanding were sold short in March as Russia’s conflict with neighboring Ukraine escalated.
RSX has been the worst performer of the four major single-country ETFs tracking BRIC nations this year, but the struggles of Russian stocks could give way to significant upside, according to some market observers.
Analysts expect Russia’s benchmark Micex Index to surge 27% over the next 12 months, the best expected performance among the four BRIC nations, Bloomberg reported earlier this weeek.
Expectations of a lengthy rally in Russian shares has some traders ratcheting up their risk tolerance with Russia ETFs. For example, the Direxion Daily Russia Bull 3x Shares (NYSEArca: RUSL), which attempts to deliver three times the daily performance of RSX’s underlying index, has added over $26 million in new assets this month. [Getting Aggressive With Russia ETFs]
Compelling valuations are helping. RSX sported a trailing 12-month P/E ratio of just 5.87 and a price-to-book ratio of 0.81 at the end of July, according to Market Vectors data. That is a significant discount to the comparable India and Brazil ETFs.
Notable discounts are available on Russian small-caps as well and that has helped stoke inflows to the Market Vectors Russia Small-Cap ETF (NYSEArca: RSXJ). At the end of July, RSXJ’s P/E was just 6.93. The ETF has added $16.6 million of its $73.2 million in assets under management this month. RSXJ is up 11.2% since we profile it on May 2. [Big Potential With Small Russia ETF]
Market Vectors Russia ETF
