As today is New Year’s Day, I wanted to keep things short and give you a quick update on an ETF I wrote about back in September: the Market Vectors Russia ETF (RSX).
As a brief reminder, RSX gives investors exposure to publicly traded companies listed in Russia. It holds 49 positions across a variety of sectors, the largest of which is the energy sector.
At the time I wrote about RSX, the price was just beginning to break out above a support line, making for an aggressive entry point for strategic investors.
Looking at RSX today (Thursday, December 29), it’s clear that it has officially broken out and is on its way up. In fact, the price is already up almost 17% since I wrote about it in mid-September.
In 2016, RSX was in the top 10 of the best performing country ETFs—as were 3 other Russia-specific ETFs—having gained just over 45% since January 2016, and there are gains to be had in 2017 as well.
One of the key factors to keep an eye on in 2017 will be oil prices. In 2016, the recovery in oil was a big help to Russia, Brazil, and other oil-rich nations, with the gains sparked by OPEC and other major oil producing countries agreeing to cut production in an effort to alleviate an overwhelming supply glut that had kept prices low since 2014.
While the gains from oil will only last so long, many of the non-energy related sectors of the Russian economy have been doing well, and the influx of money from rising oil prices—even if oil prices only rise through 2017—will go a long way toward helping lift the Russian economy from its worst recession in the post-Soviet era.
Russian policy makers made some good moves in 2016 to get the economy going again, with credit agency Fitch noting a “coherent and credible policy response [that]… stands out relative to those of other oil producers similarly affected by the oil price shock.” These policy moves coupled with other sectors of the Russian economy doing better in 2016 sets up 2017 to be another potentially very good year for the RSX.
Another factor will be the softening rhetoric from the U.S. on Russia with the inauguration of an incoming President Trump. There was no question during the campaign season that Trump is more a friend to Russia and Vladimir Putin than the outgoing President Obama.
Obama’s retaliatory sanctions announced this past Thursday in response to the cyberattacks by Russian intelligence—attacks meant to sway November’s Presidential election in favor of Trump—seem largely symbolic, and may be overturned by Trump. And it seems that the market is largely ignoring the friction toward Russia from the current administration, looking ahead to the incoming one instead as evidenced by the climb of the RSX since November.
Being seen favorably by the President of the most powerful nation in the world can only be a good thing for Russia, which is one of the most undervalued equity markets on the planet. While emerging markets have largely struggled since the election, the notable exception was Russia, and it’s no wonder why.
Turning back to RSX. In my first article about the ETF, it was clear that the entry point investors had at the time was an aggressive one. As the price has certainly broken out since, the uptrend is becoming more clear, though it is still in its early stages.
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For those of you who got in back in September, watch for the price to test (blue lines) the support line (pink line) to add to your position.
This test is also a great entry point for more conservative investors, so watch for it to make your move.
While I do think Russia is a great emerging market play for 2017, I won’t be surprised if there is some volatility along the way as Trump tests his new relationship with Putin. But don’t let your emotions get the better of you, volatility usually makes for opportunities to add to your position.