With oil prices continuing to sag, Russian stocks are struggling and those struggles are reflected by the Market Vectors Russia ETF (NYSEArca: RSX). The largest Russia exchange traded fund trading in the U.S. is off more than 8% over the past month.
In addition to slumping oil prices, Russian stocks and ETFs such as RSX are also being hampered by the plunging ruble. During Russia’s trading session Wednesday, the ruble slumped to an all-time low against the U.S. dollar, prompting some market observers to up criticism of the country’s central bank for doing more to defend the currency.
Those factors and others are causing global investors to lose patience with Russian equities. On a technical basis, some traders could see opportunity in RSX because the ETF’s recent slide has made it deeply oversold.
Investors “are getting out of Russian stocks faster than local traders are selling shares on the Moscow Exchange, causing the valuation gap between onshore and offshore-traded equities to narrow to levels not seen in as long as a year. The asset dump comes after oil, the country’s main source of revenue, plunged to a 12-year low last week and the ruble retreated the most among developing-nation peers,” reports Elena Popina for Bloomberg.
The combination of a weakening energy outlook and the depreciating currencies are dragging on the ETFs that cover the major exporting countries. In June, the Bank of Russia cut its one-week auction to 11.5% from 12.5%. Just eight 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.
Economic bservers 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. Russia’s GDP is expected to contract again this year, extending what is becoming a lengthy recession.
Investors have pulled nearly $56 million from RSX since the start of this year. As Bloomberg notes, local Russian investors are sticking with their country’s stocks.
Market Vectors Russia ETF
