Bulls Return to Russia ETF as Ruble’s Decline HaltedElena Popina
Investors are piling into the biggest exchange-traded fund tracking Russian equities at the fastest pace in more than a year as government measures to stabilize the ruble ease concern that there will be a prolonged stock rout.
Asset managers added $126.2 million to the Market Vectors Russia ETF on Dec. 23, the most in one day since May 2013, data compiled by Bloomberg show. Shares in the $1.6 billion fund gained 3.3 percent to $15.95 on yesterday, trimming their decline in 2014 to 45 percent. posts a five-day rally,
The inflow came as Russia moved to support the currency, stemming the biggest decline in emerging markets this year. The ruble extended its rally for a fifth day today, strengthening 2.2 percent to 52.29 per dollar by 12:13 p.m. in Moscow.
Policy makers engineered a cash shortage to prop up demand, and the government ordered five state-controlled exporters to cut their foreign-currency holdings. Short interest as a percentage of shares outstanding in the ETF slid to 12 percent on Wednesday after touching a nine-month high of 16 percent on Dec. 17.
“Investors are betting that the across-the-board plunge in Russian assets is unsustainable,” Aleksei Belkin, who helps manage about $4 billion at Kapital Asset Management LLC, said by phone.
While the dollar-denominated RTS Index’s 42 percent drop this year has been the worst after Ukraine among 93 primary equity gauges tracked by Bloomberg globally, funds tracking Russian stocks have grown the most in emerging markets after India, taking in $1.1 billion, data compiled by Bloomberg show. Equities listed on the benchmark Micex Index in Moscow on average sell for 4.6 times projected 12-month earnings, the cheapest among developing-nation stocks.
The ruble is on pace for its first weekly gain in a month as policy makers pushed exporters to sell foreign currency revenue and lowered ruble liquidity, cutting off some investors from the local currency needed to buy dollars. The ruble slid past 80 per dollar on Dec. 16 amid the biggest rout since 1998.
Downside risks to the world’s most volatile currency remain. Russia’s gross domestic product will shrink as much as 4.7 percent in 2015, according to central bank estimates for a stress scenario based on oil prices averaging $60 a barrel.
Standard & Poor’s said Dec. 23 that it’s reviewing Russia’s BBB- credit ranking for a possible downgrade amid concern the nation’s banks will face mounting bad loans after the central bank increased benchmark borrowing costs to 17 percent from 10.5 percent. S&P said there’s at least a 50 percent chance it will reduce the rating below investment grade within 90 days.
“People piling into the Market Vectors Russia ETF might be speculators who are fishing for short-term gains,” Sergei Pigarev, an analyst at Rye, Man & Gor Securities in Moscow, said by telephone. “Investors interested in staying in Russia long-term are usually looking at the GDP forecast, currency price, market volatility, and as Russia is teetering on the brink of being cut to junk, the reality we are facing is not suggesting a lot of opportunities for investors.”
Russia’s $2 trillion economy is poised to fall into recession for the first time since 2009 as plunging oil prices exacerbate the impact of international sanctions linked to the Ukraine crisis. President Vladimir Putin denies involvement in the conflict in the former Soviet republic.
Ukrainian and pro-Russian separatist representatives resumed talks in Minsk, Belarus, to discuss implementing agreements on prisoner exchanges and the withdrawal of heavy weaponry. Ukraine has a list of 225 names ready, including Russian officers, according to Ukrainian State Security Service adviser Markiyan Lubkivsky.
“All the risks associated with Russia aside, the stocks remain cheap, and there is a great potential for an upside,” Andrey Shenk, an analyst at Alfa Capital in Moscow, said by phone. “When we speak about the fundamentals of the market and not the imminent reaction, the value you can get for the price you pay is a great deal.”