Speculation that the Federal Reserve will raise interest rates next month is pressuring emerging markets stocks and exchange traded funds, but the declines being experienced by some developing economies could be a buying opportunity for prescient investors.
Already among the best-performing single-country emerging markets exchange traded funds (ETFs) this year, the VanEck Vectors Russia ETF (NYSEArca: RSX) and the iShares MSCI Russia Capped Index Fund (NYSEArca: ERUS) could be opening the door for investors as other emerging ETFs decline on Fed speculation.
Related: Emerging Markets ETFs Keep Bleeding Assets
Impressive still is the fact that Russian stocks and exchange traded funds such as RSX and ERUS are rallying despite the lack of significant production cuts from the Organization of Petroleum Exporting Countries (OPEC) are major oil-producing countries that are not OPEC members, such as Russia.
With the oil factor in mind and the energy sectors overweight position in ETFs like RSX and ERUS, it might be logical to think that boosting output at a time of still low oil prices is not something Russia would do. However, that is exactly what the country is considering doing. In fact, Russian oil output is expected to climb this year.
Some market observers like Russian debt as well.
[related_stories]“We remain cautious on emerging market external debt, as sovereign spreads have tightened over 100 basis point since mid-February while global fundamentals and external debt technicals may pose risks in the short term. We are Overweight Argentina, Indonesia and Kazakhstan. We are Underweight Philippines, Lebanon and Peru. We like 10y30y DV01-neutral flatteners in Colombia, Peru, Uruguay and Russia. We like steepeners in Argentina,” according to a Bank of America Merrill Lynch note posted by Dimitra DeFotis of Barron’s.
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.
Related: Russia Leveraged ETF Punished
RSX is the largest and most heavily traded of the Russia ETFs listed in the U.S. Following a sharp advance on the back of rebounding Brent crowd prices, Russian stocks are still inexpensive relative to broader emerging markets indexes, but some market observers advise caution.
RSX is home to some of the emerging world’s least expensive stocks as highlighted by the ETF’s price-to-earnings ratio of under nine and a price-to-book ratio below one, according to issuer data.
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VanEck Vectors Russia ETF
