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These Country ETFs Benefit from Oil Rebound

Zacks Equity Research

It’s truly been a roller-coaster ride for oil. The liquid commodity plunged to a six-and-a-half year low at the start of the week only to record the highest single-day gain in over six years to end the week. While pockets of weakness in most global superpowers including the Euro zone, China and Japan have resulted in weaker activities and weighed on crude oil prices so far, the recent rout in the Chinese market following its currency devaluation and grave economic situation slaughtered the already weak oil prices (read: 4 Ways to Short the Energy Sector with ETFs).


However, after a week-long losing streak, jittery investors worldwide saw some relief on Wednesday as China slashed rates to boost its economy and repeatedly intervened into the stock market to contain the relentless slide. Also, hunt for bargain took center stage. To add to this, the U.S. economy grew at 3.7% in Q2, which breezed past the initial reading of 2.3% growth and 0.6% expansion recorded in the seasonally weak Q1.


A strong rebound in the U.S. economy, which is in fact the world’s largest economy, ruled out the demand-related fear out of the oil space. Plus, as per the American Petroleum Institute (API) crude stock piles declined by 7.3 million barrels in the week ending August 21,whcih is way lower than analysts’ projection of a rise of 1.9 million barrels in crude inventories. This overall bullish sentiment showered massive gains on oil prices on August 27 as oil advanced around 10%. Both WTI and Brent crude benefitted from this unexpected surge.


As a result, key oil producing and exporting countries that were on a downtrend so long, saw a sharp rise on Thursday trading. As we all know, ETFs offer a great opportunity while it comes to playing a particular nation. In light of this, we have highlighted a few country ETFs that could see a turnaround in the days ahead should oil price continue to rise (see all energy ETFs here).


Market Vectors Russia ETF (RSX)


Things have been pretty tough for Russia for last one-and-a-half year. If the tussle between Russia and the West on the Ukraine issue bothered the country, oil – seemingly the main commodity of the nation – posed further risks to its economy (read: 3 Russia ETFs at Bargain Prices Right Now).


RSX is the most popular and liquid option in the space with an asset base of $1.6 billion and average trading volume of more than 11 million shares a day. The fund tracks the Market Vectors Russia Index to provide exposure to the Russian equities.


The energy sector accounts for about 43% of RSX with Gazprom and Lukoil – the Russian energy giants – taking more than 15% share of the fund. RSX charges 63 basis points as expenses. The fund was up 6.7% on August 27.


iShares MSCI Malaysia Index Fund (EWM)


The Malaysian equity market has been also been a weak spot lately as its neighboring country China devalued its currency in mid August. Also, falling oil price hurt the stocks of the oil-rich Malaysia, which happens to be one of the largest Asian crude exporters. Political crisis is another cause of concern for Malaysia (read: 3 Country ETFs Impacted By China Currency Devaluation).


The $256 million-fund EWM looks to track the performance of the Malaysian equity market. EWM charges investors 48 basis points a year in fees and was up 5.2% on August 27 both on oil price recovery and the return of risk-on trade sentiment into the market.


iShares MSCI UAE Capped ETF (UAE)


Oil-rich OPEC nations (Organization of Petroleum Exporting Countries) must be the big beneficiary of this sudden surge in oil. UAE is such a country. The fund provides exposure to 32 stocks by tracking the MSCI All UAE Capped Index. The ETF has accumulated $27.5 million in AUM so far while charging investors 62 bps in annual fees. Volume is paltry trading in about 15,000 shares a day on average. The fund returned 5.5% on August 27.


Another OPEC nation Qatar also got mileage out of this jump. Its pure play ETF, MSCI Qatar Capped ETF (QAT) soared 8.1% yesterday while yet another Middle East fund Market Vectors Gulf States Index ETF (MES) added over 4.7%.


iShares MSCI Canada ETF (EWC)

 

Canada is also among the world’s top 10 oil producers. The best way to invest in Canada is through iShares MSCI Canada ETF, a product that has nearly $1.88 billion in assets. The fund tracks the MSCI Canada Index, holding just under 100 stocks in its basket. Although financials takes the top spot at about 40%, energy makes up a huge chunk of assets accounting for about 20% of the total. The fund gained over 3.6% on August 27, 2015. EWC charges 48 bps in fees.