Russia ETF Swells to Record as Investors Bet Oil Is Stabilizing

  • Shares outstanding in the ETF hovering around 117 million
  • World Bank cut 2016 crude forecast to $51 per barrel from $61

Investors piling into the biggest exchange-traded fund tracking Russian stocks are pushing the total number of shares to the highest levels on record as stabilizing oil prices and a rebound in the ruble lures them back to the cheapest equities in emerging markets.

The Market Vectors Russia ETF has posted net inflows of $216.5 million in the past seven weeks, pushing the number of shares outstanding to 117 million, according to data compiled by Bloomberg. Total assets have increased 18 percent to $2 billion from a six-month low in August. The fund has posted an 18 percent return this year, the second-best performance among more than 600 U.S.-domiciled ETFs with assets of at least $200 million.

Demand for Russian assets is rising as Brent crude stabilized at around $50 a barrel and the ruble rallied 9.6 percent in the past two months, the most among emerging-market currencies. Mounting speculation that the Federal Reserve will keep U.S. interest rates lower for longer has also buoyed demand for riskier assets, prompting some investors to take another look at the Micex Index, which trades at 5.7 times projected earnings.

“The sentiment among investors piling in is that things in Russia won’t become worse and might become better,” Sergei Pigarev, senior analyst at Rye, Man & Gor Securities, said from Moscow on Tuesday. “Investors pay a lot of attention to the Federal Reserve, and the fact that it left the rates unchanged pushed them to return to the cheap Russian market.”

A slump in oil prices from around $115 a barrel in June 2014 and sanctions linked to the Ukraine conflict have hurt Russia’s economy and spurred capital flight from the world’s largest energy exporter. Brent, the oil grade traders use to price the nation’s main blend, rose 0.2 percent to $48.71 a barrel Tuesday, widening its rebound from this year’s low in August to 14 percent. Prices have averaged $49.32 a barrel for the past month. The ruble gained 0.3 percent to 62.08 against the dollar, strengthening for the fourth time in five days.

Crude will average $51 a barrel in 2016, the World Bank said in a report on Tuesday. This compares with the bank’s $61-per-barrel estimate three months ago. Russia’s economy is forecast to shrink in every quarter until July 2016, according to the median forecast of 14 economists surveyed by Bloomberg.

The Market Vectors Russia ETF rose 0.9 percent to $17.27 in New York. The Bloomberg Russia-U.S. Equity Index added 0.1 percent to 50.62. Futures contracts on the dollar-denominated RTS Index expiring in December slid 0.4 percent to 87,290 in U.S. hours.

Moscow-based United Co. Rusal, the world’s biggest aluminum producer last year, dropped 2.2 percent to HK$3.09 at 10:38 a.m. in Hong Kong, heading for the lowest close since Sept. 29.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE