Russian stocks and related exchange traded funds could be in for more pain ahead as Moscow warns of an economic recession if crude oil prices slide to $60 per barrel.
Russia equity ETFs are already in a bear market. Year-to-date, the Market Vectors Russia ETF (NYSEArca: RSX) declined 28.7%, iShares MSCI Russia Capped ETF (NYSEArca: ERUS) decreased 27.5% andSPDR S&P Russia ETF (NYSEArca: RBL)fell 28.4%.
The energy-heavy Russia ETFs could experience further weakness if oil prices continue to dip. RSX has a 42.4% position in energy stocks, with 7.9% in Gazprom and 7.5% in LukOil. ERUS includes 47.1% in energy stocks, with Gazprom 18.7% and LukOil 11.0%. Additionally, RBL has 48.1% in energy, with Gazprom 16.3% and LukOil 12.1%.
Finance Minister Anton Siluanov expects the Russian economy to expand less than 1% in 2015 even if oil prices hold steady and Western sanctions remain unchanged, reports Olga Tanas for Bloomberg.
Any further declines in the price of oil would only exacerbate an already battered economy that has been crippled by U.S. and European Union economic sanctions.
“Recession is inevitable in 2015 if the situation worsens,” Siluanov added. “If the oil price declines to $60 per barrel, the economy will have negative growth.”
Brent crude oil futures currently hover around $78.5 per barrel. Looking ahead, the International Energy Agency projects further weakness in the oil market as slow global demand and robust supply keep pressure on prices.
The Russian economy is expanding at its slowest pace since 2009. The economy grew 0.7% in the third quarter year-over-year.
The central bank anticipates that the gross domestic product will be flat in 2015. Central bank Governor Elvira Nabiullina believes the economy will remain stable despite the “unfavorable” conditions of $80 oil and sanctions that will run through the end of 2017.
More international investors, though, are already calling it quits, with $130 billion in expected capital outflows from Russia this year, the highest level since 2008, the Moscow Times reports.
However, some traders have been moving into Russia ETFs to try and time a possible rebound, with RSX attracting $1.25 billion in assets year-to-date, according to ETF.com data.
Market Vectors Russia ETF
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
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