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.
“Ahead of his meetings this week in Washington and Moscow, French President Francois Hollande also urged US President Barack Obama and President Vladimir Putin to put aside their differences over Syria and Ukraine and work together against Islamic State,” Matys said. “This could potentially lead to easing Western Sanctions. Removing various restrictiosn imposed on Russia would definitely ease the burden on its economy and allowed GDP growth to regain better traction sooner.”
Additionally, Russian equities, notably oil stocks, were strengthening Monday on speculation that Saudi Arabia will cooperate with other producers to maintain stable oil prices, Bloomberg reports.
The energy sector makes up a large chunk of the Russia markets and ETF. For instance, RSX includes a 42.9% tilt toward the energy industry, with Gazprom 7.6% and Lukoil 7.6% among its top holdings. [Oil Prices Remain a Drag on the Russia ETF]
Market Vectors Russia ETF
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Max Chen contributed to this article.