Round-the-Clock Ukraine Twists Spur Russia ETF Trading
Overseas trading of Russian stocks is soaring as investors react to the twists and turns of the military standoff in Ukraine long after the Moscow bourse has closed for the day.
Volumes in the Market Vectors Russia ETF (RSX) surged to an all-time high of 26 million on March 3, more than six times the one-year average, as stocks plunged after President Vladimir Putin got lawmakers’ approval to deploy troops in Ukraine’s Crimea region. Investors have sought to hedge their assets in Russia as they gauge whether the worst standoff between Moscow and the West since the end of the Cold War will escalate.
U.S.-based ETFs invested $90.9 million in Russian equities yesterday, the most inflows among 46 country-specific funds tracked by Bloomberg. Still, these funds have lost 14 percent of their total assets this year. The Market Vectors ETF, which tracks companies from Gazprom OAO to OAO Lukoil, has dropped 3.2 percent this week, while the Micex Index in Moscow tumbled 6.5 percent and the Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. has slumped 4.2 percent.
“It’s like buying and selling insurance as you are dropping from the airplane and not sure if you packed the parachute or not,” Kirill Yankovskiy, director for equity sales at UralSib in London, said of the trading spike.
The Micex dropped 1 percent in Moscow today as Crimea’s parliament voted to become a part of Russia. The region will hold a referendum March 16 on whether to remain part of Ukraine, according to a statement on its website.
Putin is seeking to regain influence over Ukraine after the overthrow of Kremlin-backed President Viktor Yanukovych, who was deposed by lawmakers on Feb. 22. Ignoring warnings from the U.S. and the European Union, Putin has since sent thousands of troops to augment the 15,000 already in Crimea.
The “ETF was the only liquid way to trade Russia after Moscow and London closed and traded at an all-time record on Monday,” Luis Saenz, head of equity sales and trading at BCS Financial Group, said by phone from London yesterday. “Everyone is in a wait-and-see mode depending on the potential sanctions the U.S. would place on Russia, and this is what is driving the market today.”
The Bloomberg Russia-US gauge slipped 0.6 percent to 84.63 yesterday, led by a 5.9 percent plunge in OAO Rostelecom, which sank to an eight-year low of $15.53. The Market Vectors fund fell less than 0.1 percent to $23.67. The Micex index dropped 0.4 percent to 1,351.11 yesterday, after a 5.3 percent rebound on March 4 that followed an 11 percent plunge March 3. The Micex traded up 0.5 percent at 11:28 a.m. in Moscow today.
Increased volumes make “total sense with the Russian-Ukraine angst,” Dave Lutz, the head of ETF trading and strategy at Stifel Nicolaus & Co. in Baltimore, wrote in an e-mail. “RSX volumes were elevated prior to the Olympics -- and there was some heavy options activity then as well -- but of course Ukraine is the reason. As the tension dissipates, so will the volumes.”
The dollar-denominated RTS Index (RTSI$) added 0.2 percent today, paring its decline this week to 6.5 percent. Futures on the RTS gauge retreated 0.3 percent to 117,590 in U.S. hours. The RTS Volatility Index, which measures expected swings in futures, climbed 2.7 percent to 51.72 yesterday.
United Co. Rusal, a Moscow-based aluminum producer, jumped 3.8 percent to HK$2.74 in Hong Kong trading, poised for the largest gain since Jan. 24. The MSCI Asia Pacific Index added 0.8 percent.