The VanEck Vectors Russia ETF (NYSEArca: RSX), the largest Russia exchange traded fund trading in the U.S., struggled to start 2017 and Russian equities slumped during the second quarter, but stocks there have been perking up in the third quarter.
RSX is up nearly 3% over the past week and has jumped almost 17% off its second-quarter lows. That could be a sign investors are putting recent sanctions against Russia in the rear view mirror and are focusing on other factors.
“Also, it has been two months since the Bank of Russia cut rates to 9.0%. Another rate decision is due soon. Given that inflation is now firmly below the 4% target, wages are rising and the credit markets are healthy the Bank has the room to cut rates further and allow for greater growth of the domestic ruble lending market versus the dollar markets, which are still substantial,” according to a Seeking Alpha analysis of Russian equities.
More important to Russian stocks than the sanctions could be oil prices because Russia is the world’s largest non-OPEC producer. While Russian stocks historically trade at discounts relative to international benchmarks, the ruble is currently one of the cheapest emerging markets currencies.
The recent sanctions may have caught some investors off guard given speculation about alleged ties between the White House and the Kremlin. President Donald Trump has acted more friendly toward Russia and Russian president Vladimir Putin. Consequently, market observers are speculating that the Trump administration could be more willing to roll back sanctions placed on Russia in response to its actions against Ukraine.
Of course, there is considerable controversy surrounding Trump’s alleged ties to Russia, a scenario that has provider the media with ample fodder and could be playing a role in hampering Russian stocks at a time when emerging markets equities are surging.
“With Russian macroeconomic statistics improving every month there is little standing in the way of a rate cut here to further stimulate domestic activity without overheating the economy. In fact, the bigger worry would be large capital inflows through year-end if the interest-rate arbitrage between Russia and Europe/U.S. real rates remain this high, if not higher,” according to Seeking Alpha.
Related: 5 Russia ETFs Looking to Rebound
Alternatives to RSX, also the most heavily traded Russia ETF, include the iShares MSCI Russia Capped ETF (NYSEArca: ERUS) and the VanEck Vectors Russia Small-Cap ETF (NYSEArca: RSXJ).
Aggressive, risk-tolerant traders can consider 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.
For more news on Russia ETFs, visit our Russia category.