Long correlated to oil prices due to its nearly 43% weight to the energy sector, the Market Vectors Russia ETF (NYSEArca: RSX) is finally getting some relief as oil prices rebound.
The United States Brent Oil Fund (NYSE: BNO) has surged 21.3% over the past week, sparking RSX to a gain of more than 6% over the same period. RSX investors should monitor BNO because Russia, the world’s largest non-OPEC oil producer, prices its oil exports in Brent terms. RSX, the largest Russia ETF, is on a five-day winning streak thanks to oil’s resurgence.
The combination of a weakening energy outlook and the depreciating currencies are dragging on the ETFs that cover the major exporting countries. For instance, the energy sector makes up more than 40% of the portfolio in RSX. 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. Investors are also expressing concern regarding one of Russia’s worst recessions in the post-Soviet era. [More Issues for Russia ETFs]
RSX “has jumped from a seven-month low on Aug. 24 as investor sentiment toward Russian equity assets improved in tandem with the rising price of oil, the country’s biggest export and a major source of government budget revenue. Brent crude surged 6.9 percent to $53.52 a barrel on Monday as OPEC said it’s ready to talk to other global producers to achieve “fair prices” and the U.S. reduced its output estimates, alleviating concern that a global oversupply will persist,” writes Elena Popina for Bloomberg.
In June, the Bank of Russia cut its one-week auction to 11.5% from 12.5%. Just six months ago, Russia’s central bank boosted its benchmark interest rate to 17% from 10.5%. However, rising inflation there is seen as a hurdle to additional easing. Last week, the Bank of Russia estimated June inflation to be 15.6%. [Russia Economy, ETFs on the Mend]