The largest exchange-traded fund tracking Russian stocks fell to the lowest since March after the biggest weekly outflow in two months as the International Monetary Fund said the country’s economic recovery will be muted as a decline in oil prices persists.
The Market Vectors Russia ETF dropped 3.5 percent to $16.38 in New York, deepening its three-day slump to 5.5 percent. Traders pulled $34.7 million from the fund last week, data compiled by Bloomberg show. Most of the country’s American depositary receipts also dropped Monday. Lender OAO Sberbank tumbled to a four-month low.
Investors, who had been returning to Russia after the world’s biggest stock slump in 2014, are pulling back as Brent plunged into a bear market and a selloff in the ruble wiped out most of its gains for this year. Investment in the country will continue to deteriorate amid “low confidence and tight financial conditions,” the IMF said in a report Monday. The price of oil, which together with natural gas accounts for half the nation’s budget revenue, will probably remain well below its 2014 level, meaning weak prospects for recovery in the medium term, the IMF said.
“As no new growth drivers are appearing and the old growth driver, oil, can be less and less counted on, investors have nothing to do but head for the exits,” Aleksei Belkin, the chief investment officer at Kapital Asset Management LLC, said by phone from Washington on Monday. “The rebound investors had hoped for and enjoyed earlier this year is fading away.”
Russia is beset by its first recession since 2009 after energy prices fell and sanctions linked to the Ukraine conflict curbed international financing. The nation’s slump deepened in the second quarter as gross domestic product contracted 4.4 percent from a year earlier after a 2.2 percent drop in the first three months of the year, according to the Economy Ministry. GDP will probably shrink 3.4 percent in 2015, the IMF said.
The ruble, which rallied the most in the world earlier this year, weakened 2.9 percent against the dollar Monday, the biggest drop among emerging-market currencies. Brent, the oil grade traders use to price Russia’s main export blend, fell below $50 a barrel for the first time since January. Russia needs “an ambitious and credible” fiscal program to counter lower oil prices, the IMF said in the report.
Sberbank declined 5.5 percent to $4.63. The Bloomberg Russia-US Equity Index dropped 3 percent to 50.55, narrowing its advance in 2015 to 2 percent. Futures on the dollar-denominated RTS Index expiring in September slipped 0.8 percent to 82,090 in U.S. hours.
Shares of Moscow-based United Co. Rusal were unchanged at 10:28 a.m. in Hong Kong on Tuesday.