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RSX: What The OPEC Price War May Mean For Russian Equities

Harrison Schwartz profile picture
Harrison Schwartz


  • Following the recent decline in crude oil prices, I am no longer bullish on Russian equities.
  • Since Russia turned its back on OPEC+, it is likely that crude oil will stay lower for longer and promote a devaluation of the Russian Ruble.
  • While RSX has a low valuation, similar "P/E" ratios are seen in U.S. equities of similar sector exposure.
  • Oil prices are now below production costs for Russian companies, meaning giants like Gazprom are likely to finally lose money this year.
  • A deterioration in the Russia-Saudi relationship may also promote long-term geopolitical volatility.
  • I do much more than just articles at Core-Satellite Dossier: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Last November, I covered the Russian equity market in "RSX: Bullish Economic Backdrop In Russia Looks Even Better." The VanEck Russia ETF (BATS:RSX) had decent performance over the preceding two months but reversed all gains on Monday falling a staggering 17.5%. Similar losses were seen in the small-cap Russia ETF (RSXJ) which fell about 18%.

This came after years of strong economic and financial performance from Russia. The Russian economy was in a prolonged recession until about 2016 due to the oil-price collapse and Crimea-related economic sanctions but has managed positive growth since then. This has resulted in high recent equity performance regardless of currency denomination.

First, take a look at RSX and RSXJ's returns compared to the S&P 500 since January 2019:

As you can see, both were generally outperforming the S&P 500 despite a weak oil market. Importantly, the Russian economy is very sensitive to the oil price since it makes up over half of its exports. Even more, the Russian energy sector makes up about 40% of RSX's total holdings.

Importantly, the Russian Ruble has a significant impact on RSX's price since the earnings of its underlying holdings are denominated in Rubles not Dollars. While RSX has seen large corrections since 2015, the MOEX (Russia's Ruble-denominated equity index) has been in an aggressive bull market:

(Trading Economics)

I believe this chart is more illustrative of the recent shock than the RSX price chart. This is because of its acceleration higher and extremely rapid recent decline that indicates its bull market is likely over.

Let's dive deeper into the economic backdrop surrounding the companies in RSX and try to get a clearer picture of what this recent shock will mean for Russia. In my opinion, it largely negates my previous bullish stance.

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This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

Gazprom primarily produces natural gas with oil as a supplement - and some oil via the subsidiary, Gazprom Neft. Further, due to a recent EU competition case, some of Gazprom’s gas pricing that was oil linked is now less linked to oil. Gas has its own price issues and GAZ is clearly under pressure.

I’m also surprised you wrote this without discussing Rosneft, Russia’s largest oil producer. Their lifting and transport costs are under $20.
all oil co crashed and Gazprom so stable..I wait to crash to buy in...
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