The Russian ruble currency is strengthening against the U.S. dollar, and the country’s central bank cut its interest rates Thursday, with potentially more cuts to come, signalling that the worst may be over for the Russian markets and country-specific exchange traded funds.
Year-to-date, the Market Vectors Russia ETF (NYSEArca: RSX) surged 35.1%, iShares MSCI Russia Capped ETF (NYSEArca: ERUS) jumped 32.8% and SPDR S&P Russia ETF (NYSEArca: RBL) increased 33.2%. The Russia-related ETFs are now trading back above their 200-day simple moving averages. [A Recovering Russia ETF]
Adding to the strength in Russian equities, the ruble currency has appreciated 17.5% against the U.S. dollar so far this year and 46% since its intra-day low in December, reports Min Zeng for the Wall Street Journal.
Additionally, the Russia markets are bouncing back after crude oil prices, one of the country’s major exports, rebounded off a six-year low and geopolitical tensions between Ukraine begin to dissipate.
The energy sector is also a large component in the Russia-related ETFs. For instance, energy companies make up 43.3% of RSX, 47.6% of ERUS and 52.2% of RBL.
Russia funds are attracting heavy inflows after the sell-off, with global investors piling $617 million in new cash into Russia-related mutual funds and ETFs after investors yanked $675 million from Russia stock mutual funds and ETFs in 2014. RSX, the largest Russia-related ETF, has added $338 million in net assets so far this year, according to ETF.com.
Dialing back on its ruble-crisis-mode management, Russia’s central bank cut interest rates by 150 basis points to 12.5% Thursday and hinted at further cuts soon, CNBC reports. The central bank has been incrementally reducing rates after a surprise hike in December to 17% from 10.5% in an attempt to manage the quickly depreciating ruble and rising inflation.
Looking ahead, observers are remain cautious over the market outlook. While President Vladimir Putin and other Russian politicians argue that the worst is over, the economy is expected to remain in a recession for the year.
Market Vectors Russia ETF
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Max Chen contributed to this article.