After being one of the hottest equity markets in the emerging world last year, Russia has been cool to start 2017. For example, the VanEck Vectors Russia ETF (NYSEArca: RSX), the largest Russia ETF trading in the U.S., is off 2.2% year-to-date while the MSCI Emerging Markets Index is soaring.
Importantly, there are some macro factors that could stoke a rebound for RSX and Russian stocks as 2017 moves along.
“The Russian stock market is already not expecting the lifting of sanctions in the nearest future, so now it is regarded as a possible bonus. The country’s economy is reviving, and the tight policy of the central bank constrains inflation, allowing the ruble to remain stable,” according to a Seeking Alpha analysis of Russian 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.
“In the future, it will lead to an increase in the domestic demand. The volatility of the current oil price represents a significant risk, which is important for the shares of Russian energy companies, constituting 38% of RSX’s portfolio. This risk is reflected in the outflow of funds invested in Russia,” according to Seeking Alpha.
Alternatives to RSX, also the most heavily traded Russia ETF, 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).
More aggressive traders have also turned to the Direxion Daily Russia Bull 3x Shares (NYSE: RUSL), which attempts to deliver triple the daily returns of the same index tracked by RSX. The Direxion Daily Russia Bear 3x Shares (NYSEArca: RUSS) looks to deliver triple the daily inverse returns of that index on a daily basis.
RSXJ, the Russia small-cap ETF, has a fair amount of exposure to the domestic economy as utilities, consumer staples and real estate stocks combine for almost 42% of that ETF’s lineup. As is usually the case, Russian stocks are attractively valued relative to broader emerging markets benchmarks.