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Brent in Bear Market: 4 Country ETFs to be Cautious About

Sanghamitra Saha
These country ETFs may underperform in the coming days if oil prices continue to struggle.

Crude Oil lost nearly 7% on Nov 13, the maximum in three years. The liquid commodity has been in a freefall for 12 days in a row, marking the “longest losing streak in history.”Brent crude entered the bear market while the U.S. crude has already been in that territory. The commodity is now down more than 27% from the highs hit in early October.

United States Brent Oil (BNOlost about 18.7% in the past month (as of Nov 13, 2018) and United States Oil (USOwas down about 22.7%. The entire chaos — which pulled oil down from a four-year high to a bear market in just six weeks — has been created by the U.S. sanctions on Iran (read: Oil in Bear Market: Leveraged ETFs to Gain From).

Market watchers earlier expected a harsh punitive measure by the United States on Iran’s energy sector and thus projected a supply crunch. This caused an oil rally in the late August-early October period. But in reality, the sanctions appeared way softer. Washington offered temporary waivers to eight key buyers.

The United States is pushing oil production higher with output from seven major shale basins expected to hit a record of 7.94 million barrels per day (bbl/d) in December, per EIA. So, increasing supply and worries of an economic slowdown put a pressure on prices. Even OPEC bigwig Saudi Arabia’s plans (announced on Nov 12) to cut shipments by 500,000 barrels per day could not soothe investors’ nerves.

Apart from energy-related investments, there are other corners that are linked to the commodity oil and are equally at risk if black gold remains stressed. Those corners are key oil producing and exporting countries which have been exhibiting a downtrend, as revenues earned from this commodity account for a major share of their GDP.  Investors should closely watch these areas in the coming days.

VanEck Vectors Russia ETF (RSX)

Oil — seemingly the main commodity of Russia — posed huge risks to the nation. About half of Russia’s exports in terms of value come from oil and natural gas as the country has the third-largest oil reserve in the world and the biggest natural gas reserve. This makes it clear why Russia’s economy is highly dependent on the oil price movement.

So, the plunge in oil prices will likely lead investors to hesitate before investing in Russia. In fact, subdued oil prices and a stronger U.S. dollar on the Fed policy tightening may put pressure on the Russian currency ruble (read: ETFs to Benefit & Lose From a Strengthening Dollar).

RSX is the most popular and liquid option in the space with an asset base of $1.47 billion. The energy sector accounts for about 41% of RSX, which charges 67 basis points as expenses. The fund is down 3.9% in the past month (as of Nov 13, 2018).

Global X MSCI Norway ETF (NORW)

Norway is among the top 10 nations famous for oil exports and with its comparatively low population, oil forms the key part of the country’s GDP. Per U.S. Energy Information Administration (EIA), Norway is the largest oil producer and exporter in Western Europe.The oil and gas sector makes up around 22% of Norwegian GDP and 67% of Norwegian exports.

The most popular way to play the country is with NORW. The product tracks the MSCI Norway IMI 25/50 Index, a benchmark of 61 companies that focuses on Norway, charging investors 50 basis points a year in fees.

The ETF is heavily concentrated on energy stocks, as these make up for nearly 34% of the portfolio. The fund has lost 7.1% in the past month (as of Nov 13, 2018).

iShares MSCI Canada ETF EWC

 Canada is also among the world’s top 10 oil producers. The oil, gas and mining sector makes up about over a quarter of Canada’s economy. The country is one of the world's largest producers of dry natural gas.

The best way to invest in Canada is EWC, a product that has nearly $2.65 billion in assets. The fund holds just under 100 stocks in its basket. Energy makes up a huge chunk of assets accounting for one-fifth of the total. The fund has lost about 2.9% in the past month (as of Nov 13, 2018).

Global X MSCI Colombia ETF (GXG)

Colombia's economy is also energy-dependent and can also be hit hard by the slump in global oil prices. Oil exports make up about 20% of government revenues. The Colombia ETF GXG is heavy on Financials (44.64%) while the energy sector has about 22.47% exposure. The fund has lost about 6.9% in the past month.

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VANECK-RUSSIA (RSX): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
US BRENT OIL FD (BNO): ETF Research Reports
ISHARS-CANADA (EWC): ETF Research Reports
GLBL-X NORWAY (NORW): ETF Research Reports
GLBL-X/F COL 20 (GXG): ETF Research Reports
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