Russia ETF Investors Whipsawed as Oil Weakens Recovery Prospects

  • Price swings at widest since September as Brent crude tumbles
  • Energy sales account for about half of Russia's budget revenue

Price swings in the biggest exchange-traded fund investing in Russian stocks increased to the widest levels in three months as oil trading around an 11-year low worsened the outlook for the world’s largest energy exporter’s economic recovery.

Historical five-day volatility in Market Vectors Russia ETF rose to 49 percent
on Monday, the highest since September. The shares retreated 3.1 percent to $14.48, narrowing this year’s gain to 2.5 percent.

Investors in the ETF, more than 40 percent of which is invested in energy companies have endured increasingly wide prices swings as Brent crude sank below $37 a barrel. Energy sales account for about half of Russia’s budget revenue. Slumping oil prices rippled through consumption and industrial output, causing the nation’s economy to shrink in November for the first time in five months.

“Brent trading at current levels is a no-go for foreign investors interested in Russia,” Sergei Pigarev, senior analyst at Rye, Man & Gor Securities, said by phone from Moscow on Monday. “With oil at current levels, the outlook doesn’t look too bright.”

GDP Contraction

The economy contracted 0.3 percent in November on a seasonally adjusted basis after gains of 0.1 percent in October and 0.3 percent in September, the Economy Ministry said in a report on Monday. Gross domestic product shrank 4 percent last month from a year earlier. Brent trading at $35 a barrel would cause GDP to decline by as much as 3 percent in 2016, the central bank said this month.

Volatility surged even as investors added $53 million in the fund last week in the biggest inflow since October. Investors pulled $79.48 million from the fund in the three months through September, the biggest quarterly withdrawal since 2013.

Brent crude, the grade traders use to price the nation’s main blend, fell 3.4 percent to $36.62 a barrel on Monday. The ruble slid 2.1 percent to 72.225 against the dollar, a record-low close. Futures contracts on the RTS Index expiring in March added less than 0.2 percent to 75,560 in U.S. hours.

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