Commodities and War Concerns Weighing Down RSX

The Market Vectors Russia  (RSX) has been trading in the red lately as illustrated in the three-month chart due to a downtrend in energy commodity prices – as the ETF has a 38.9% concentration in oil and gas companies – and the invasion of Georgia. The Russia ETF is dominated (95%) by large caps, defined in this fund as companies over $6 billion market caps, of which over two-thirds are commodity-related (energy, metals, and agriculture). The fund is also facing headwinds from a 28.4% weighting in iron/steel and agricultural companies because of the overall decline in commodities.

The accompanying chart reveals a decline of about 30% over the last three months for the Russia ETF as compared to declines of about 10% and 20% for the S&P 500 Index and Energy Sector SPDR, respectively. Aside from the recent decline in commodities, investors appear to be bailing on concerns that Russia is returning to old ways of bullying its much smaller neighbors through military actions. Given the political uncertainties and decline in commodities, I would stay away from the Russia ETF until these two key factors change in favor of the fund.

Comments

[mwswi:]

The Georgia matter will drag out, but eventually be resolved when Russia decides they have adequately taught everyone a lesson. Russia has been more than happy to let this "crisis" evolve into a chess game and see themselves playing the upper hand (which, in reality, they are). The political environment will slide back into cruise-control and the matter will become yet another footnote in history. The "West" has a short memory.

However, from an investment point-of-view, perhaps this would be an opportune moment in time to consider incrementally increasing stakes in RSX. Unless, of course, you believe that gas and oil has much further to fall. After all, Europe still awakens each day as long-term customers of Russian gas and oil. Even short-term political acrimony won't do much to affect that.

2008 Aug 20 09:51 AM

[buyitcheap:]

Seems like we might be seeing the "red swan" event here.

2008 Aug 20 09:18 PM