Russia ETFs On The Rocks...Except For One
For a good part of this year, the Market Vectors Russia ETF (NYSE: RSX) was the gem of BRIC basket, rising as exchange traded funds tracking Brazilian, Chinese and Indian stocks fell. Those good times were confined to early 2015 because RSX has tumbled 23 percent over the past month as tumbling oil prices have taken their toll on the energy-heavy Russia ETF.
With the United States Brent Oil Fund (NYSE: BNO) — a relevant comparison because Russia prices its oil exports in Brent terms — down more than 47 percent over the past six months and trading near 52-week lows, RSX is also in danger off new lows. Now saddled with a small year-to-date loss, RSX closed Monday just 3.5 percent off its 52-week low.
"The sector outlook for Russian oil and gas companies is negative for 2016 due to Fitch Ratings' expectation of continued low oil prices, higher taxes, an end to recent oil production growth and a gradually increasing impact from Western sanctions. Leverage metrics for most companies are likely to remain reasonable for their ratings, but the sector's rating outlook is also negative as most ratings are capped by the Russian sovereign's 'BBB-'/Negative rating," said Fitch Ratings in a recent note.
Fitch added that dwindling earnings could further depress Russian energy sector earnings. Either markets have to reconcile that fact, or other sectors start driving upside for Russian equities. Financial services and consumer staples could be important catalysts, as those sectors combine for 20 percent of RSX's weight, according to Market Vectors data.
Despite slumping oil prices and Russia's economy immersed in its worst post-Soviet era recession, investors have poured $67.4 million into RSX this quarter while flows into and out of the Direxion Daily Russia Bull 3x Shares (NYSE: RUSL) and the Direxion Daily Russia Bear 3x Shares (NYSE: RUSS) have been hardly noticeable.
"Russia, the world's largest energy exporter, is beset by its first recession since 2009 as international sanctions tied to the Ukraine conflict worsens the impact of the plunge in crude. Central bank policy makers this month lowered the threshold for what they consider a 'risk scenario' for the economy to $35 a barrel. Prices at that level would cause a decline of as much as 3 percent in gross domestic product next year, they estimate," reports Bloomberg.
Those ominous scenarios, if they come to pass, would bode well for RUSS. RUSS, which attempts to deliver triple the daily inverse performance of the index RSX tracks, has surged a jaw-dropping 52 percent over the past month.
However, traders are sleeping on the bearish Russia fund and that could be a sign there is more upside ahead. RUSS has lost a modest amount of assets in the current quarter and its volume has been dwindling. For the five days ended December 18, volume in RUSS was more than 24 percent below the trailing 20-day average, according to Direxion data.
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