Are Russian ETFs Signaling A Potential Crash?
The Russian stock market has been besieged by plunging commodity prices and geopolitical strife this year that has led to deterioration in investor confidence for this emerging market nation.
Now the latest blow to the Russian financial system is the specter of a full blown currency crisis.
According to Bloomberg, the ruble has slid 30 percent this year amid economic concerns and speculative trading that has forced the Russian central bank to intervene and defend its currency using short-term loans. This currency instability has also leaked over into Russian stocks as well.
The Market Vectors Russia ETF (NYSE: RSX) tracks 49 large- and mid-cap stocks that are domiciled in Russia. This ETF has more than $2 billion in total assets and has fallen more than 27 percent this year.
That easily puts Russian equities in a bear market after hitting their lowest levels of 2014 last week.
Market technician and Marketfy maven JC Parets of Eagle Bay Capital recently noted on Russia, “We've been structurally bearish for years and prices are currently near the lowest levels since 2009 and hitting multi-year lows relative to U.S. stocks.”
Parets went on to say, “It's an emerging market which in general are worse than developed nations. And within the emerging space, it is one of the worst.”
These woes haven’t stopped fund managers from pouring money into Russian ETFs this year.
According to ETF.com, RSX has garnered more than $1.2 billion in net inflows this year as equity prices have weakened to deep discounts.
ETFs have become a popular way to play emerging market nations rather than picking individual stocks as they provide instant diversification and daily liquidity.
Other funds that have been significantly impacted by this turmoil include the Market Vectors Russia Small Cap ETF (NYSE: RSXJ) and the iShares Russia Capped ETF (NYSE: ERUS). The smaller company focused RSXJ has declined 36 percent in 2014 as this economically sensitive basket of stocks continues to struggle.
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