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]