Exchange traded funds tracking Russian equities are dangerously flirting with bear markets, but that is not preventing investors from putting new capital to work in the funds.
On Monday, Russia’s RTS Index, a dollar-denominated gauge of Russian stocks, “entered a bear market as a court ruling restricting AFK Sistema from receiving dividend payments from its OAO Bashneft unit wiped a quarter off the holding’s value,” reports Ksenia Galouchko for Bloomberg.
Russia’s ruble fell to a record low Monday against a basket of U.S. dollars and euros even after the central bank attempted to assuage skittish global investors by saying it would step in to support the flailing currency.
Down nearly 3% Monday, the Market Vectors Russia ETF (RSX) is currently off about 19.4% year-to-date, putting the ETF dangerously close to the 20% decline necessary to qualify the fund for the ominous bear market distinction. The rival iShares MSCI Russia Capped ETF (ERUS) is also close to a bear market with a year-to-date loss of nearly 18%.
The falling ruble and declining stock prices has not prevented investors from returning to deeply discounted Russian stocks. Last week, RSX, the largest and most heavily traded Russia ETF, added over $182 million in new assets as it rose 1.3%. That brings the fund’s year-to-date inflows total to almost $306.2 million. [Returning to Russia ETFs]
The late September inflows to RSX are the ETF’s best pace of asset gathering since March when Russia invaded Ukraine.
Russia’s benchmark Micex Index “trades at 5 times estimated 12-month earnings, the cheapest in emerging markets,” according to Bloomberg.
In a sign of how swift the pullback in emerging markets ETFs has been this month, RSX’s roughly 3% loss for September is enough to make it the best of the four major single-country ETFs tracking BRIC economies.
Russia ETFs are not alone in their bear market flirtations. With Monday’s tumble on news President Dilma Rousseff is pulling ahead of challenger Marina Silva just days before Brazil’s Oct. 5 national elections, the iShares MSCI Brazil Capped ETF (EWZ) is Monday’s worst-performing non-leveraged ETF. With a September loss of 18.8%, EWZ could enter bear market territory in a matter of days. [Brazil ETF Gets Closer to Bear Market]
Market Vectors Russia ETF
ETF Trends editorial team contributed to this post.
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