Russia country-specific exchange traded funds have rallied this month and are testing their long-term trend lines as oil prices strengthen.
The VanEck Vectors Russia ETF (NYSEArca: RSX) rose 2.2% Thursday, testing its long-term resistance at the 200-day simple moving average. RSX gained 6.1% over the past month but was still down 0.3% year-to-date.
Supporting the Russian markets, the emerging country’s oil and gas companies are enjoying record production and high prices in local currency, Bloomberg reported.
Brent crude oil futures are now hovering around $81.7 per barrel compared to the $66.6 per barrel price at the start of the year.
Russian crude oil producers have also seen revenue from rising oil magnified due to the weakening ruble currency as crude oil is priced in U.S. dollars, which helped industry achieve record-breaking revenue and shrink debts.
Russia Is Not Without Risks
However, the Russian market is not without risks. There are growing concerns that the U.S. could toughen sanctions on Russia in connection with the year’s chemical weapons attack in the U.K. and on the ongoing allegations of election interference or electronic tampering.
“All investors are asking themselves — OK, the Russian companies look attractive right now, but what about the next six months, what about the next 12 months?” Alexandre Dimitrov, head of Emerging Europe EQ Funds at Erste Sparinvest Kap Mbh, told Bloomberg. “Everyone is looking at November, when we have mid-term U.S. Congress elections and the new sanctions against Russia.”
Meanwhile, an agreement between the Organization of Petroleum Exporting Countries, along with its allies, in June to relax output curbs allowed Russian oil companies to bolster production, especially in the wake of U.S. sanctions on Iran, which will leave a gap in global production. The sudden boon has some in the industry projecting a new post-Soviet record this month.
Ekaterina Iliouchenko, a money manager at Union Investment Privatfonds GmbH, argued that Russian producers are an an attractive long-term play because of their low extraction costs globally, focus on domestic projects with a long reserve lifespan and growing dividend yields.
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