A Growling Russian Bear

February 20, 2019 11:53 am
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Emerging stocks and exchange traded funds are trending higher this year, and Russian stocks are participating in that action. Buoyed by rising oil prices, the MVIS Russia Index (MVRSXTR) is higher by 9.55 percent.

However, Russian equities may encounter some near-term headwinds.

What Happened

Those headwinds have shown signs of appearing in February. Month-to-date, the Direxion Daily Russia Bear 3X Shares (NYSE:RUSS) is up more than 9 percent, making it one of Direxion's best-performing leveraged bearish ETFs since the start of February.

RUSS tries to deliver triple the daily inverse returns of the MVIS Russia Index. That benchmark is a rules-based index, intended to represent the overall performance of publically traded companies that are domiciled and primarily listed on an exchange in Russia or that are not Russian companies, but nonetheless generate at least 50% of their revenues in Russia,” according to Direxion.

Why It's Important

Entering Tuesday, RUSS was also the best-performing inverse leveraged ETF in the Direxion stable over the past week. Bolstering the near-term case for RUSS, an ETF that should be used exclusively as a short-term trading vehicle. Morgan Stanley recently lowered its rating on Russian equities.

“In Moscow we found the sentiment overshadowed by sanctions uncertainty and the authorities' contingency plans,” said Morgan Stanley in a recent note, reports Reuters.

There are risks to consider when embracing the bearish RUSS. Rising oil prices are a tailwind for Russia's equity market because the country is one of the world's largest crude producers. The Moscow Stock Exchange (MOEX) recently touched a record high on the back of rising oil prices and more investors there are joining the party.

“The number of investors on the Moscow Exchange recently reached two million, with more than 700,000 people joining trading in 2018,” according to RT News.

The index RUSS is designed to triple the daily inverse exposure of allocates over 41 percent of its weight to energy stocks.

What's Next

With Russia pumping oil at record levels to exploit higher prices and stocks there still attractively valued against broader emerging markets benchmark, RUSS's days as the better-performing of the two leveraged Russia ETFs could be number. The bullish Direxion Daily Russia Bull 3X Shares (NYSE:RUSL), which looks to deliver triple the daily returns of the MVIS Russia Index, could be poised to rally.

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