Cyprus Slivers Slamming These ETFs
By the metrics of geographic size and population, Cyprus is small. It is merely the third-largest island in the Mediterranean Sea. The country is home to just over 1.1 million, making it smaller than Sicily and Sardinia by both area and population.
Cyprus' diminutive status has not stopped it from being a big thorn in the side of global equity markets over the past few days. With Cypriot lawmakers looking poised to reject a controversial levy on bank deposits aimed it shoring up the country's ailing financial systems, fears are high that Cyprus is teetering on the brink of bankruptcy and possible expulsion from the eurozone.
While Cyprus is a tiny country with a relatively small economy, and one not large enough to warrant a Cyprus-specific ETF, negative headlines out of the country have had a predictable impact on some marquee Europe ETFs.
With that in mind, goings on in Cyprus are also having an adverse impact on a surprising group of ETFs, including the following.
Market Vectors Russia ETF (NYSE: RSX) It is widely known that Russian oligarchs stash plenty of cash in Cyprus and Russia has previously provided financial assistance to the island nation, including a loan of EUR2.5 billion in 2011. So it is not surprising Russia is none too please with the plan to tax deposits made in Cyprus-based banks.
What is surprising, at least somewhat, is the adverse reaction to this scenario by the Market Vectors Russia ETF. Unlike its two smaller rivals, RSX has some slight exposure to Cyprus. Emphasis on "slight." As of February 28, RSX, the largest Russia ETF by assets, had a 1.3 percent weight to Cyprus, according to Market Vectors data.
Accounting for Monday's session and just half of Tuesday's action, RSX is down more than five percent. Translation: In less than two full trading days, RSX's percentage loss is roughly triple its exposure to Cyrpus.
Global X FTSE Greece 20 ETF (NYSE: GREK) The Global X FTSE Greece 20 ETF making this list is arguably not as surprising as RSX. After all, Greece is not too far away from Cyprus, so GREK could be viewed as a "guilty by proximity play." Interestingly, it is $4.5 billion in bad Greek debt owned by Cypriot banks that is contributing to Cyprus' imperiled financial state.
On an even more practical level, Greece and Cyprus have an intimate trading relationship. Greece is Cyprus' third-largest export partner and second-largest provider of imports, according to the Cypriot Embassy. In the past five days, GREK has plunged nearly eight percent.
iShares MSCI Italy Index Fund (NYSE: EWI) Another proximity play, the iShares MSCI Italy Index now faces a tenuous technical situation thanks to Cyprus' woes. EWI is down "just" 1.1 percent, a performance that is far better than what traders are seeing in GREK and RSX, but EWI's loss has it flirting with critical support at $12.
Already trading slightly below its 200-day moving average, a bearish sign in the eyes of many technical analysts, a break below $12 could easily take EWI back to its August lows of around $10. Indeed, a bad Cypriot economy is bad for Italy. Italy is Cyrpus' third-largest import partner behind the U.S. and Greece.
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