The United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, tumbled nearly 13% last week on its way to a 52-week low. Not surprisingly, Brent’s ongoing swoon is pinching Russian stocks and the corresponding exchange traded funds.
Last week, the Market Vectors Russia ETF (NYSEArca: RSX) slid 8.3%. Russia country-specific ETFs are usually sensitive to changes in oil prices because the funds allocate significant portions of their weight to energy stocks and the sector accounts for a massive percentage of the total market value of Russian equity markets.
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. Last week, the Bank of Russia estimated June inflation to be 15.6%. [Russia Economy, ETFs on the Mend]
Looking at RSX’s chart, “you can see that the bears have recently pushed the price of the fund below a key support level (shown by the dotted line). The past few consecutive closes below the support level act as a clear indicator to active traders that the momentum is in favor of the bears and that the next leg of the trend will likely be lower,” according to Investopedia.
Investors could also be lured back to RSX and Russian stocks due to some of the emerging world’s cheapest valuations. Still, Russia is one of the world’s largest energy producers outside of the Organization of Petroleum Countries (OPEC) and the country is grappling with perhaps its worst post-Soviet era recession.
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.
“The charts of several key publicly traded assets suggest that increased volatility and falling stock prices could keep Russia in the headlines in 2016. Based on the patterns discussed above, bullish traders who are looking for exposure to this dynamic country may want to remain on the sidelines until the prices can close above their identified resistance levels,” adds Investopedia.
Market Vectors Russia ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.