Scalper1 News
Summary OPEC fails to provide support to oil prices, posing a significant risk for RSX. The story with Turkey is evolving as I predicted, and does not add much to the bear thesis. The ruble remains relatively overvalued. Market Vectors Russia ETF (NYSE: RSX ) had an interesting November. The ETF moved up and down, fueled by implications of Paris attacks, the shooting of the Russian jet by Turkey and the fluctuations of oil prices. In this article, I’ll focus on two major developments – the Russian sanctions on Turkey and OPEC’s decision to leave things as they are. Turkey In my article on RSX that was published right after the jet incident I stated that Russia’s response won’t be harmful for RSX components. This what exactly happened. In essence, Russia banned tourism and food from Turkey. The food ban comes into power on January 1, 2016, but multiple reports from Russian media show that it is already next to impossible to bring food from Turkey in reasonable time due to customs’ intense checks. Short-term, this will increase inflation, as Russia imports most fruits and vegetables that it consumes in winter because of obvious geographical reasons. As for RSX holdings , this might hurt the retailer Magnit, but I don’t think that it will have a big impact on Magnit’s bottom line. Russian president promised more sanctions on Turkey, but so far there was more harsh talk than real actions. Given the nature of the incident, tourism and food bans are a very light response. I anticipate more words (like the recent mutual accusations of involvement in the ISIS oil trade) from both sides as politicians want to score some points, but I expect little action. Among RSX holdings, the biggest risk is on Sberbank (OTCPK: OTCPK:SBRCY ), which is the fund’s biggest holding. Sberbank owns DenizBank, which is a notable player in the Turkish market. In the latest interview to the Russian media, Sberbank’s head German Gref stated that he saw no significant risks for Sberbank in Turkey, and I agree with his assessment. OPEC OPEC’s decision to live things as they were was predictable, but, nevertheless, was bad for Russia. I think that OPEC’s inability to function as an organization will put more pressure on the oil market. I recently argued that a perfect storm could push oil to $25 per barrel. Such a drop will push RSX way past the lows of December 2014. However, even current prices present an enormous threat to the Russian economy as the country eats through its emergency funds. The ruble The ruble (which is an important factor for the dollar-denominated RSX) stays relatively strong given the current oil price. The ruble-denominated oil price stubbornly stays around 2900 per barrel, while the Russian budget for 2016 needs at least 3150 per barrel. Sanctions on Turkey limit the Central Bank’s ability to decrease the rate, which is currently at 11% . However, if oil stays weak in the beginning of 2016, I expect that the Central Bank will have to cut the rate to provide some help to the Russian budget. Bottom line I remain bearish. RSX was clearly not the easiest short trade in the last few months. There was some optimism about Russia and buying activity was real. However, I question the Russian economy’s ability to successfully operate at current oil price levels. Also, as I think that the next leg down in oil is around the corner, I expect further weakness in RSX. Scalper1 News
Scalper1 News