Why Russia’s ETF Could See Some Slow Growth

Russia has finally emerged out of its recessionary slump, but the economy and country-related ETFs may not move onward and upward as quickly as times past.

According to the World Bank, the post-crisis environment in Russia provided the necessary catalyst for reforms when it comes to the country’s structural constraints and weak domestic demand, writes Gleb Bryanski for Reuters. Without reforms, the World Bank believes Russia’s growth will remain sluggish.

Russia’s Central Bank is expected to continue to cut interest rates to ease lending, but the cost of lending still remains high. The Russian Central Bank is trying to dampen the appreciation of the ruble and will soon have to choose “between maintaining a competitive exchange rate for tradable industries and avoiding inflationary pressures,” says the World Bank.

A return of capital inflows to Russia is expected by the first quarter of 2010 as oil prices increase and the global outlook improves. Russia’s inflation rate will range between 9% and 10% in 2010, but stimulus policies may raise it further in the second quarter. The unemployment rates may also rise based on seasonal factors.

Prime Minister Vladimir Putin stated said the government will continue to enact measures aimed at boosting domestic demand, strengthening the banking system and decreasing the budget deficit, as stated in BusinessWeek.

According to the Economic Development Ministry, Russia’s GDP is projected to contract 8.5% for 2009. The economy grew 0.6% in the third quarter, signaling an end to their recession.

• Market Vectors Russia ETF (NYSEArca: RSX): up 137.2% year-to-date

• iShares Emerging Markets Eastern Europe Index Fund (NYSEArca: ESR): up 5% in the last month; Russia is 75%

• SPDR S&P Emerging Europe (NYSEArca: GUR): up 81% year-to-date ; Russia is 65%

• Dow Jones Emerging Markets Energy Titans (NYSE: EEO): up 16.8% in the last three months; Russia is 36.3%

Max Chen contributed to this article.

Comments

[RussianEqui...:]

To me, the funniest thing that Russia's rates are the highest among -20. On the other hand, notorious political risk factor sits where it was. Temptation to carry trade Ruble grows bigger and bigger, and the CBR's awkward attempts to tame deposit rates fed by huge inflow of necessarily speculative money, won't be able to change the picture. I am not saying Russia will experience flood of cash next year, but, at least, the accompanying tug of war is worth a global investor's scrupulous check.

Nov 23 09:52 AM