All four of the worst-performing non-leveraged exchange traded funds to this point in Monday’s session are Russia funds, the result of Standard & Poor’s slapping the first junk rating on the country’s sovereign debt in a decade.
Earlier Monday, S&P lowered its rating on Russian debt to BB+, the highest junk rating, from BBB-, the lowest investment grade. Russia is now the only member of the BRIC quartet with a non-investment grade rating from S&P. The ratings agency has sovereign ratings of BBB- on Brazil and India.
Shares of the Market Vectors Russia ETF (NYSEArca: RSX), the largest and most heavily traded Russia ETF, are off 6.5% while the iShares MSCI Russia Capped ETF (NYSEArca: ERUS) is lower by 7.3%. Those losses come just days after Russia ETFs had shown signs of perking up in the face of ongoing declines in the price of Brent crude. Russia, the largest non-OPEC producer in the world, prices its oil in Brent terms. [Russia ETFs Try to Stave off Bad News]
Last year, RSX plunged 47.2%, moving in near lockstep with the United States Brent Oil Fund (NYSEArca: BNO), which tumbled 49%.
News of the S&P downgrade is not surprising. Last month, the ratings agency placed Russia’s sovereign debt on CreditWatch with negative implications, indicating Russia could lose its already tenuous grasp on its investment-grade credit rating.
S&P’s move to put Russia on CreditWatch negative reflects the ratings agency’s “view that there is at least a one-in-two likelihood of a negative rating action within 90 days,” said S&P at the time. In April 2014, Standard & Poor’s lowered its rating on Russian sovereign debt to BBB-, the lowest investment grade. It was the first time the ratings agency has downgraded Russia since 2008. [Russia ETFs Slide After S&P Downgrade]
Earlier this month, Moody’s Investors Service lowered its rating on Russian sovereign debt to one notch to Baa3 from Baa2. That was after Fitch Ratings lowered Russia’s sovereign credit rating to BBB-, the lowest investment grade, with a negative outlook. Fitch previously rated Russian sovereign debt BBB. [Russia ETFs Fall After Fitch Downgrade]
Some investors were prepared for Russia’s move to junk status. RSX has lost $92.2 million in assets this year, but other Russia ETFs have seen inflows. ERUS and the SPDR S&P Russia ETF (NYSEArca: RBL) have added a combined $13.5 million since the start of the year.
RBL and the Market Vectors Russia Small-Cap ETF (NYSEArca: RSXJ) are down 6.1% and 4.5%, respectively, today.
Market Vectors Russia ETF