Up nearly 30% year-to-date, the VanEck Vectors Russia ETF (NYSEArca: RSX) is easily one of this year’s best-performing single-country emerging markets exhange traded funds. While RSX, the largest and most heavily traded US-listed Russia ETF, is on pace for its best annual performance in several years, that does not mean Russian stocks have exhausted their upside potential.
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.
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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.
Although Russia’s credit rating has been pressured in recent years, that situation may be turning for the positive as well.
“Despite the high dependency of Russia on commodity prices, markets don’t believe in the possibility of default: CDS spread has been stable for the last few years and taking into account only 35.67% of the external debt to GDP, Bloomberg model applies a low risk,” according to a Seeking Alpha analysis of Russian markets.
Russian stocks recently got a lift after President Vladimir Putin said Russia, the world’s largest energy exporter, is ready to join OPEC in limiting oil production with either a freeze or a cut, Bloomberg reports. Looking ahead, Putin hoped OPEC would agree in November to limit crude oil production and promised Russia was ready to back such a decision. Russia is the largest non-OPEC producer in the world.
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“Based on the forecasts, Russia is predicted to slowly recover from the recession, with only 1.5% of GDP growth in 2018. On the other hand, inflation is predicted to decrease by 4.5%, while currency is expected to depreciate by 12%,” adds Seeking Alpha.