The United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, surged 5.2% Tuesday on above average volume, providing a spark to energy-heavy Russia exchange traded funds.
For example, the Market Vectors Russia ETF (NYSEArca: RSX), the largest Russia exchange traded fund trading in the U.S., climbed 2.4% on the back of Brent’s rise. RSX allocates over 40% of its weight to the energy sector and has previously displayed a tight correlation to oil prices.
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]
“Russian equity assets advanced as Brent crude rallied above $51 a barrel amid mounting speculation that declining U.S. output will ease a global supply glut. The world’s largest energy exporter’s economy has slumped into its first recession since 2009 as oil selling for about half its five-year average price exacerbated the impact of international sanctions linked to the Ukraine conflict,” reports Elena Popina for Bloomberg.
Investors could also be lured back to RSX and Russian stocks due to some of the emerging world’s cheapest valuations.
However, for now, many investors are cutting their losses as outflows from emerging markets ETFs continue at a blistering pace. Developing world equities have to contend with plunging currencies, slack commodities demand and stumbling stocks in China, the largest emerging market. [Emerging Markets ETFs Keep Bleeding Assets]
Nevertheless, more intrepid investors may target some of the cheapest emerging markets. For instance, Russi is currently the cheapest on absolute terms, with a forward P/E ratio for the MSCI Russia Index at 4.9, compared to its 5-year average of 5.2, according to Capital Economics.
“Policy makers in Moscow are debating a mix of measures to cover a widening budget deficit. The government is close to canceling a planned cut in oil-export duty next year, which will save about $3 billion,” Bloomberg reported, citing Russia’s Economy Minister Alexei Ulyukayev.
Market Vectors Russia ETF
