Despite a nearly 7% drop over the past month that has helped usher the Market Vectors Russia ETF (NYSEArca: RSX) into a bear market, investors keep allocating cash to the fund.
RSX, the largest and most heavily traded Russia ETF, has seen inflows of $608 million over the past two months, the ETF’s best run of asset additions since 2011, report Elena Popina and Halia Pavliva for Bloomberg.
Investors have yet to be rewarded for their faith in dollar-denominated Russian equity assets such as RSX. The ETF tumbled 15.3% in the third quarter, by far the worst performance by the four major BRIC single-country ETFs. If not for the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), which is also in a bear market, RSX would have been the worst September performer of that quartet. [Brazil, Russia ETFs Near Bear Markets]
Proving that the impact of currency fluctuations on equity investments in foreign markets cannot be underestimated, Russia’s benchmark Micex rose in August and September, according to Bloomberg. However, the dollar-denominated RTS Index actually entered a bear market just days prior to RSX accomplishing the same ominous feat. [Russia ETFs Keep Gaining Cash]
The ruble has recently been flirting with record lows against the U.S. dollar, but some investors have been willing to bet on Russian stocks because the country’s central bank has attempted to assuage skittish global investors by saying it would step in to support the flailing currency.
Investors’ faith in Russian stocks may yet be rewarded as there signs months-long tensions with neighboring Ukraine are thawing. RSX has lost 10.1% since early March when Russia invaded Ukraine. A 10% for a security meets the definition of a correction.
Additionally, investors remained enticed by valuations that are among the lowest in the emerging world. The Micex is valued at 4.8 times estimated 12-month earnings, the cheapest among emerging markets, according to Bloomberg.
RSX had a P/E ratio of 5.83 and a price-to-book ratio of 0.8 at the end of August, according to Market Vectors data. That P/E is less than half the comparable number on the MSCI Emerging Markets Index.
Market Vectors Russia ETF
