The VanEck Vectors Russia ETF (NYSEArca: RSX) is flat year-to-date, but the largest exchange traded fund tracking Russian stocks is higher by more than 53% over the past year and there are potentially more catalysts ahead that could boost Russian financial markets.
Some market observers believe RSX and Russian equities have the wind at their backs in 2017 and not all of that has to do with the newly inaugurated U.S. president. Oil prices have rallied as growing economies devour raw materials to fuel their growth and recent plans to cut production from the oil cartel, the Organization of Petroleum Exporting Countries, along with other non-OPEC members.
“Adding to the case for Russian bonds is the possibility of an upgrade to the country’s sovereign debt rating. Last week, Moody’s Investor’s Service raised its outlook on Russia’s credit rating to stable from negative. Moody’s and Standard & Poor’s currently assign junk ratings to Russian sovereign bonds. Investors should take note of the following ETFs given the possible Russian return to investment-grade status,” reports Investopedia.
Market observes also expect Russia’s central bank to lower interest rates as the economy there improves and inflation remains tepid.
“In April 2016, Moody’s confirmed Russia’s Ba1 rating but assigned a negative outlook to reflect the risk of further erosion of the government’s fiscal savings in the context of a lower oil price environment,” said Moody’s in a note out last week. “While there has indeed been some erosion of buffers in the meantime and the government’s fiscal performance has fallen short of its own expectations, Moody’s now believes that the downside risks identified in April 2016 have diminished to a level consistent with a stable outlook. The stabilization of the rating outlook partly reflects external events, and in particular the increase in oil prices to a level consistent with the government’s budget assumptions. The stable outlook also reflects the plans the government has put in place to consolidate its finances over the medium term, and the slow recovery in the economy following almost two years of recession.”
Alternatives to RSX, the largest Russia ETF trading in the U.S., include the iShares MSCI Russia Capped ETF (NYSEArca: ERUS), SPDR S&P Russia ETF (NYSEArca: RBL) and the VanEck Vectors Russia Small-Cap ETF (NYSEArca: RSXJ).
Last month, the VanEck team pointed out that despite the recent jump in Russia’s markets, Russian stocks remain relatively attractive. Specifically, RSX is trading at a 7.83 price-to-earnings ratio and a 0.76 price-to-book.
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.