The VanEck Vectors Russia ETF (NYSEArca: RSX) and the iShares MSCI Russia Capped Index Fund (NYSEArca: ERUS) are among the best-performing single-country emerging markets exchange traded funds (ETFs) this year and much of the upside delivered by those funds is attributable rebounding commodities prices.
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.
Russia ETFs have impressed this year particularly when considering market observers widely expect Russia’s worst post-Soviet era recession to extend throughout this year. Onlookers 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.
“The Central Bank of Russia in June cut interest rates by 0.5 percentage points as inflation remained steady despite an anticipated acceleration. In a June report, the central bank stated the Russian economy was at that time facing a more favorable situation than was previously anticipated, citing a slowing in gross domestic product decline and signs of economic recovery,” reports CNBC.[related_stories]
Investors could also be lured back to RSX and Russian stocks due to some of the emerging world’s cheapest valuations. RSX is home to some of the emerging world’s least expensive stocks. The largest Russia ETF trading in the ETF allocates over 37% of its weight to energy stocks, by far its biggest sector weight.
RSX’s ascent is arguably made all the more surprising when considering the energy sector is by far the ETF’s largest sector allocation, the Russian economy’s dependence on revenue from energy exports and the reluctance of major oil-producing nations to pare output in the face of low prices and high supplies. Russia is the largest oil-producing country that is not a member of the Organization of Petroleum Exporting Countries (OPEC).
SEE MORE: Examining Russia ETFs
Gains for Russian stocks have been arriving against the backdrop of a weaker ruble and the currency now looks inexpensive against developed and emerging peers.
“The Russian ruble has fallen nearly 23 percent from its highs in late January, first dipping below the dollar in March and continuing a general decline into August,” reports CNBC.
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VanEck Vectors Russia ETF