By ETF Heat Map Team
In 2014, Russia was documented as the world’s 10th largest export economy . Russia’s largest export partners remain the Netherlands, China, Italy, Germany, and Japan. Notable import partners include China, Germany, United States, Italy, Belarus, Japan, Ukraine, and France. However, Russia has had a tough last couple of years, partially self-inflicted and partially as a result of an external commodity shock. Mr. Vladimir Putin’s heist of Crimea from Ukraine has led to international sanctions which along with the lower oil prices has led to GDP to decline by 3.7% in 2015. The impact on gross domestic income was greater at 10%, but resulted in the lower consumer and investment demand. Real GDP is forecasted to contract in 2016 given the country has a high inflation, low investment and a tight fiscal policy.
On the positive side, Russia did respond substantially better than its oil exporting peers. The Russian central bank’s flexible exchange rate policy allowed it to weather the storm, but fiscal plans still need to be ironed out. Since the crisis began, the Russian ruble’s depreciation has allowed the country an opportunity to be internationally competitive. It has attempted to change its profile primarily from a commodities exporter to a more balanced player, but this requires a substantial increase in private and public investment. It has also committed itself to increase trade, for example by 2020, Moscow and Beijing have agreed to increase bilateral trade by $200 billion.
Notable Russian ETFs worth exploring in the ETF Heat Map database and screener include:
- RSX – Market Vectors Russia ETF
- RBL – SPDR S&P Russia ETF
- RUSL – Direxion Daily Russia Bull 3x Shares ETF
- BIK – SPDR S&P BRIC 40 ETF
The good news is that the country appears to have left the eye of the storm. Unemployment rate has hit a 1 year low of 5.3% in July 2016. Trade surplus has just hit a six month high in June 2016, (USD $8.1 billion versus an expectation of USD $7.5 billion). The rampant inflation rate that was also present since the crisis began has begun to cool down. Inflation was at 7.2% (year on year) in July 2016 compared to expectations of 7.4%, and it was the lowest inflation figure since March 2014.
On the political side of things, as reported in the Economist, Mr. Putin has recently become more politically active within his own government ahead of the Russian parliamentary elections in September. Mr. Putin has so far replaced his chief of staff and close ally Sergei Ivanov with deputy Anton Vaino, and has also began to shuffle and changes Russian regional governors. Mr. Putin’s popularity, since he last tempered with the parliamentary election results in 2011 when a majority voted against a United Russia, remains fragile, and the current United Russia ruling political party has decided not to use Mr. Putin’s image in the upcoming election campaign in order to prevent a further decline in Mr. Putin’s popularity. The opposition has been reportedly “crushed” by state media sponsored attack campaigns, and Mr. Putin’s most viable opposition leader Mr. Alexei Navalny was recently beaten by pro-government bandits and Mr. Navalny’s “Progress Party has been barred from registering” .
It will be interesting to see how these new political appointments and changes will impact Russia’s future political and economic outlook; however, it can be assumed the Mr. Putin will try his best to retain control because he has not yet announced any retirement plans. Given Russia is emerging from the eye of the storm, as inflation, unemployment and trade surplus have all been trending on the positive side, it maybe a good time to consider Russian ETFs.