Russia's Benchmark Index Peaks, Will Russia ETFs Soar?

Russia country-specific exchange traded funds are picking up speed as Russian benchmark stock index, the Micex, touched its highest level since 2008.

Over the past week, the Market Vectors Russia ETF (NYSEArca: RSX) rose 9.2%, iShares MSCI Russia Capped ETF (NYSEArca: ERUS) gained 10.3% and SPDR S&P Russia ETF (NYSEArca: RBL) increased 9.3%. Year-to-date, RSX increased 20.1%, ERUS advanced 18.2% and RBL was 18.2% higher. [ETF Investors Like Their Emerging Markets A la Carte]

Meanwhile, Russia’s Micex Index surged 33.8% year-to-date to 1,868 Monday, its highest level in seven-and-a-half years.

Supporting the Russian equities market, a more stable ruble currency, improved oil outlook and potential cooperation between Russia an the west have renewed investor confidence.

After the fall off in energy prices and western sanctions following the Ukraine crisis, the RUB may be stabilizing. The currency is now trading around 65.9 to the dollar.

ETF investors may have noticed the discrepancy between the Russian benchmark and Russia country-specific ETFs. The diversifying performance could have been widened on the precipitous decline in the Russian ruble currency. Over the past year, the U.S. dollar has appreciated 43.2% against the ruble. Since the Russia ETFs do not hedge currency risks, a weaker ruble currency has weighed on U.S. dollar-denominated returns.

Piotr Matys, an analyst at Rabobank, argues that the U.S. could scale back economic sanctions imposed on Russia on greater cooperation against the Islamic State, the Financial Times reports.