Russia Stock Swings Widen as Oil Rout Dims Investor Outlook

  • Historical 15-day volatility in ETF highest since September
  • Oil prices may remain weak for years, finance minister says

Price swings in Russian equities have risen to the widest in four months as a selloff in oil dimmed the outlook for Europe’s biggest crude exporter, which already has been battered by international sanctions and the ruble’s plunge.

Historical 15-day volatility in the Market Vectors Russia ETF, the largest exchange-traded fund tracking the country’s stocks, jumped to 38 percent this week as the fund slumped for the fifth time in six days. The ETF, about 40 percent invested in energy companies, has retreated 11 percent this year as Brent slumped 19 percent.

Russia ETF
Russia ETF

Some investors who had returned to Russia in 2015 after the world’s biggest stock slump in 2014 are backpedaling as Brent trades for less than a third its five-year average. Crude prices may continue to fall and remain weak for years, Russia’s finance minister Anton Siluanov said on Wednesday in Moscow. The nation relies on oil and gas for about half its budget revenue.

Investor Nervousness

“I can’t think of too many investors who predicted that oil would be trading at current levels, so a continuing slump in crude adds to investor nervousness, leading to a spike in volatility,” Pavel Laberko, who helps manage $150 million in emerging-market assets at Union Bancaire Privee in London, said by phone on Wednesday. “There is a lot of uncertainty as to where oil is going to go from current levels, and this uncertainty is not doing much to decrease price swings.”

Brent crude, the grade investors use to price the nation’s main export blend, slid below $30 a barrel for the first time since April 2004 on Wednesday after American government data showed rising U.S. crude and fuel stockpiles, boosting concern that a global supply glut will persist. Brent crude at $35 a barrel would cause Russia’s gross domestic product to decline by as much as 3 percent in 2016, its central bank said in December.

The ruble advanced 0.5 percent to 76.677 against the dollar, narrowing its retreat this year to about 4 percent, among the biggest drops among emerging-market currencies. The Market Vectors Russia ETF slid 1.2 percent to $13.03. The dollar-denominated RTS Index fell 0.2 percent in Moscow, while futures contracts on the index retreated 0.8 percent to 68,470 in U.S. hours.

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