For a good part of this year, the Market Vectors Russia ETF (NYSEArca: RSX) and rival Russia exchange traded funds fought off tumbling oil prices to be the best-performing ETFs tracking BRIC economies.
But in recent weeks, Russian equities have slid, weighing on RSX and positioning the largest Russia ETF for a disappointing finish to 2015. 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. [Oil Prices Remain a Drag on the Russia ETF]
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. Russia is the largest non-OPEC oil producer in the world. Slumping oil prices has made the ruble one of the worst-performing emerging markets currencies, bad news for a country that depends on oil for a larger part of government revenue than any other non-OPEC nation. [More Issues for Russia ETFs]
Add to the all issue is the fact Russia remains mired in its worst post-Soviet era recession with signs pointing to that recession worsening.
“Russia’s gross domestic product had been making small gains in recent months, but contracted 0.3% in November, according to the nation’s Economy Ministry,” reports Teresa Rivas for Barron’s. “On a year-over-year basis, Russia’ GDP declined 4% in November. That brings the total decline from the start of the year through November 30 to 3.7%.”
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]
Market observers expect more interest rate cuts from the Bank of Russia next year as the central bank looks to prop up the economy there. Sanctions from the West continue hampering the Russian economy.
“The bite of sanctions and lower oil revenue is also curbing consumers, as real wages tumbled 10% and retail sales fell 13%. Economists and the Russian government admit that the nation’s recession is likely to stretch into another year, contracting again in 2016,” according to Barron’s.
Market Vectors Russia ETF
