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Oil to Hit $50? Buy These Country ETFs

Zacks Equity Research

Finally, the oil price rout seems to have bottomed out, reversing the prolonged downtrend and heading for a $50/ barrel level. This is major jump from the $30 level hit in February. Hopes of easing supply glut and signs of stabilization in various economies including the U.S. and China pushed oil prices up to the six-month highs.

The curb in supplies mainly emanated from production disruption in Canada due to Alberta wildfires, militant attacks and the threat of a nationwide strike in Nigeria, the political rout in Venezuela and reduced shale production in the U.S. The Energy Information Administration (EIA) now expects shale output to decline by 113,000 barrels a day in June from May. Weekly drawdown reports of U.S. crude stockpiles also point to sustained demand and dwindling supplies (read: Alberta Wildfire Puts These ETFs in Focus).

If this was not enough, Goldman Sachs – a candidate with bearish sentiments on oil for long – recently turned bullish on the commodity. The investment bank now believes that the two-year long supply abundance is on its way to turn into a deficit much earlier than expected. As a result, Goldman set the price target for crude oil to $45 per barrel for the second quarter and $50 per barrel for the second half (read: Oil Rally Likely to Continue: ETFs & Stocks to Watch).

If this $50 becomes a reality and stays for long, it will definitely put some country stocks and ETFs in focus. These are the key oil producing and exporting countries with revenues earned from oil accounting for a major share of their GDP.  These country ETFs suffered a lot when oil slid but could be on higher gear if oil prices stage a sustained recovery.

As we all know, ETFs offer a great opportunity while it comes to playing a particular nation. In light of this, we have highlighted four country ETFs that could shoot up in the days ahead should oil price cross the $50 mark on its way above.  Thus, at the current levels, investors should probably buy these four ETFs:

WisdomTree Middle East Dividend ETF (GULF)

The OPEC countries in the Gulf region make up for about 62% of global oil reserves. Quite expectedly, this makes Gulf countries a key beneficiary of the oil price rebound.

This ETF measures the performance of the dividend paying all-cap Middle Eastern stocks. It holds a basket of 72 stocks and has amassed $22.8 million in its asset base while trades in a thin volume of under 10,000 shares a day.

Expense ratio comes in at 0.88%. It has a Zacks ETF Rank of 3 with a Medium risk outlook. It yields about 4.05% annually (as of May 24, 2016) (read: Gulf ETFs Rising on Oil Rebound).

Global X MSCI Norway 30 ETF (NORW)

Norway is among the top 10 nations famous for oil exports. With its comparatively low population, oil forms the key part of the country’s GDP.  The most popular way to play the country is with NORW. The fund amasses about $110 million in assets, charging investors 50 basis points a year in fees. The energy sector comprises about 29% of the fund. In fact, the Norwegian oil giant Statoil accounts for 15% of the portfolio.

Market Vectors Russia ETF (RSX)

The Russian economy contracted 1.2% year over year in Q1. Though GDP fared better than the market expectation of a 2.1% decline, it was under recession for five straight quarters. Stubbornly low oil prices were mainly behind this. Oil is seemingly the main commodity of the nation.

RSX is the most popular and liquid option in the Russian equities ETF space with an asset base of $1.76 billion and average trading volume of more than 12 million shares a day. The energy sector accounts for about 39.3% of RSX with Gazprom – the Russian energy giant – taking more than 8.8% share of the fund.

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WISDMTR-ME DIV (GULF): ETF Research Reports
GLBL-X NORWAY (NORW): ETF Research Reports
VANECK-RUSSIA (RSX): ETF Research Reports
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