Investors Flee Russia ETF as Oil Slump, GDP Contraction DeepenElena Popina
Investors are withdrawing from the biggest exchange-traded fund tracking Russian equities and boosting bets the ETF is poised to decline as the tumbling ruble and oil near a five-month low worsen the outlook for an economy in its first recession since 2009.
Traders pulled $23.2 million from the Market Vectors Russia ETF last week. That followed outflows of $34.7 million during the prior five trading days in the biggest outflow in two months, according to data compiled by Bloomberg. Short interest in the fund rose to 8.9 percent of shares outstanding, a three-month high. The fund has fallen 18 percent since a May peak.
Investors have been pulling out of Russia amid a rout in oil, the country’s top export, and the ruble, the biggest decliner among emerging-market currencies in the past three months. Gross domestic product contracted 4.6 percent in the second quarter from a year earlier after a 2.2 percent decline in the previous three months, the government said Monday. That was worse than the median forecast for a 4.5 percent slump in a Bloomberg survey.
“Investors don’t want to take on the risk of dealing with Russia and just go somewhere else,” Andrey Shenk, an analyst at Alfa Capital, said by phone from Moscow on Monday. “A market that is so dominated by commodity exporters is not too appealing for foreigners at a time when energy prices are dipping lower.”
Russia’s economy has fallen into a recession after last year’s currency crisis and a surge in inflation eroded consumer buying power, and sanctions linked to the Ukraine conflict choked access to capital markets. Russia will endure a two-year economic contraction if crude prices remain at $60 through 2016, including a 1.2 percent slump next year, according to the central bank. Brent futures for September settlement closed at $50.41 a barrel on Monday in London.
The Market Vectors ETF, which had rebounded as much as 42 percent earlier this year, rose 2.8 percent to $17.06 in New York on Monday. A Bloomberg index of the most-traded Russian stocks on U.S. exchanges increased 1.8 percent to 51.22. The ruble increased 2 percent to 61.81 against the dollar.
Lukoil PJSC, Russia’s oil producer, increased 2.1 percent, the most since June, to $39.96. Mobile TeleSystems PJSC rose 3.7 percent to $8.50, a three-week high. Futures on the RTS Index expiring in September added 0.4 percent to 85,200 in U.S. hours.
Moscow-based United Co. Rusal added 0.3 percent to HK$3.61 at 10:46 a.m. in Hong Kong, heading for the highest close since July 31.