Tag Archives: russia

November And YTD Asset Class Performance

The final month of the year is now upon us, but before thinking about December, let’s recap what happened across asset classes in November. Below is our matrix of key ETFs that highlights the recent performance of domestic and international equities, currencies, commodities and fixed income. For each ETF, we show its performance since the close on 11/20, during the month of November, and year-to-date through November. As shown, small-cap and mid-cap ETFs have done very well over the last ten days, and they outperformed for the month as well. The Russell 2,000 (NYSEARCA: IWM ) ETF gained 3.26% in November versus a gain of just 0.37% for the S&P 500 (NYSEARCA: SPY ). Looking at the ten U.S. sectors, Financials (NYSEARCA: XLF ) did the best in November with a gain of 1.99%, followed by Materials (NYSEARCA: XLB ), Industrials (NYSEARCA: XLI ) and Technology (NYSEARCA: XLK ). Outside of the U.S., just three of the country ETFs featured gained in November – Australia (NYSEARCA: EWA ), Germany (NYSEARCA: EWG ) and Japan (NYSEARCA: EWJ ). India (NYSEARCA: INP ) fell the most with a decline of 4.27%. For the year, Russia (NYSEARCA: RSX ) remains the big winner at +14%, while Brazil (NYSEARCA: EWZ ) is down by far the most at -38.4%. Commodities were crushed in November, with oil (NYSEARCA: USO ) and natural gas (NYSEARCA: UNG ) leading the way lower. Gold (NYSEARCA: GLD ) and silver (NYSEARCA: SLV ) both fell sharply as well. And while Treasury ETFs have bounced back since last Monday, they were down across the board for the month.

5 Broader Emerging Market ETFs Surging This Quarter

Emerging market investing has gone dour recently on slowing growth, a potential decline in foreign direct investment on a likely cease in cheap money inflows from the U.S. (post lift-off), a stronger greenback and slouching commodities. No doubt, this time around, emerging markets are more hardwearing to the Fed blows than they were in 2013 when taper talks resumed, but threats of underperformance still persist. Investors should note that several market researchers hinted at weak global growth for the coming years and cut their estimates. For example, the Organization for Economic Cooperation and Development (OECD) slashed global growth estimates twice in three months . The organization now projects that the global economy will expand 2.9% in 2015 and 3.3% in 2016, down from the prior guidance of 3.6% for both years. For the emerging markets, protracted slowdown in the largest region China has been a huge concern and its ripples in the other parts of the bloc are souring the sentiments over the region. Moreover, China accounts for a gigantic portion of the global commodity market. Thus, a long drawn out weakness in this economy has weighed heavily on commodities. This in turn dealt a blow to two other commodity-rich emerging markets, Brazil and Russia, which are now facing recessionary threats. IMF expects the Russian economy to contract 3.8% this year and 0.6% in the next, while Brazil’s economy is expected to shrink by 3% in 2015 and 1% in 2016. However, the OECD expects both the struggling economies to return to growth by 2017. Within the bunch, India seems to be a winner, though it has its share of problems in the form of political complexity and the resultant delay in application of pro-growth reforms by Prime Minister Narendra Modi. In such a backdrop, iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) has added about 6.6% so far this quarter (as of November 20, 2015) after the MSCI Emerging Market Index lost about 19% in Q3 – the largest quarterly retreat in four years – instigated by the Chinese market upheaval, per Bloomberg. But investors should note that not all emerging market ETFs have delivered lower than 10% gains so far this quarter. In fact, Chinese ETFs returned superbly after the stock market rout in Q3 when the market had a bloodbath. Several China ETFs, especially A-Shares ones, returned more than 20%. Several Latin American ETFs too have given stellar returns, some on political hopes while others on compelling valuation. However, since particular country-ETF investing looks risky in the present market backdrop, which might not sustain returns at any point of time on any single issue, below we highlight a handful of broader emerging market ETFs that have given impressive returns even in a tough operating environment. Broader market options appeared better picks as the strength of one economy often compensates the weakness of the other. Emerging Markets Internet & Ecommerce ETF (NYSEARCA: EMQQ ) – Up 23.5% The Internet and e-commerce industry is developing fast with the increased use of social networking sites and online trading as well as the growing adoption of smartphones and other mobile Internet devices. So, this product has more to do with technological expansion in the emerging markets rather than reflecting the slowing potential of those economies. In fact, EMQQ can succeed on the back of a fast-expanding middle class population of emerging nations. This $11.7-million ETF considers companies from Asia, Latin America, Africa and Eastern Europe. Country-wise, China takes the highest allocation in the fund. EMQQ charges 86 bps in fees and is up 23.5% so far in the fourth quarter (as of November 20, 2015). First Trust BICK Index ETF (NASDAQ: BICK ) – Up 16% This $8.3-million product considers securities from Brazil, India, Mainland China and South Korea. The recent rally in the Brazilian market following its Congress decision to cut on government expenditure to boost the waning economy favored the fund. The product charges 64 bps in fees. WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (NYSEARCA: XSOE ) – Up 14.3% The $2.2-million fund can entice investors having less faith in the state-owned emerging market companies, but still intending to tap the region’s growth story. According to the issuer, the MSCI emerging market index generated 80% less returns than the U.S. markets over the past five years and this was due to the anemic performance of the SOE. In terms of geographic exposure, China (23.5%), South Korea (16.5%) and Taiwan (10.9%) have a double-digit exposure each. The fund charges 58 bps in fees. Guggenheim BRIC ETF (NYSEARCA: EEB ) – Up 12.9% As the name suggests, the $90.6-million fund considers BRIC (Brazil, Russia, India and China) economies. It charges 64 bps in fees and is heavy on IT (up 25.44%), while energy (19.30%), financials (17.38%) and telecom (12.9%) round out the next three spots. SPDR MSCI Beyond BRIC ETF (NYSEARCA: EMBB ) – Up 11.6% The $2.5-million ETF put double-digit weight in South Korea, Taiwan, South Africa and Mexico. The fund has returned over 11.6% so far in Q4 (as of November 20, 2015). Original Post

RSX: High Risk, Even Higher Reward

Summary The Russian stock market has the lowest CAPE globally. Geopolitical events have had a massive negative impact. Oil price and the Russian rouble are trading close to their historic lows. This is exactly the time when a contrarian value investor may want to enter the market. While US stocks are flirting with all-time highs, investors are prompted to seek more attractive opportunities abroad. Of course, foreign markets are in different states, and one needs to be selective. I have been keeping an eye on Russian equities for a while , and am getting close to pulling the trigger. There are four main reasons why I am bullish on Russian stocks. Valuation The Market Vector Russia ETF (NYSEARCA: RSX ) is down 65% since its peak in summer 2008. According to StarCapital , it has the lowest cyclically adjusted price earnings ratio (“CAPE”) globally of just 4.7. For a comparison, CAPE stands at 25.1 in the US. Obviously, there is no guarantee that Russian stocks will not go even lower, but from a value perspective, an investor always feels more comfortable buying something at a reduced price rather than paying more than anyone has ever paid. Furthermore, after a free fall in 2014 when it lost 47%, RSX has started showing signs of recovery and is up 20% year to date in 2015. Oil price As discussed in one of my previous articles , Russia is one of the countries most dependent on the oil market. Online investor resource InvestSpy estimates that the correlation between RSX and the United States Oil ETF (NYSEARCA: USO ) has been 0.55 since RSX’s inception in May 2007. This relationship is nicely illustrated by the following chart, which clearly illustrates how closely linked the two funds are: (click to enlarge) Source: Google Finance Although the oil market may be a long way from recovery, the current Brent crude oil spot price is pretty much where it was trading at the height of the financial crisis in the beginning of 2009. Again, this does not guarantee anything, but at least gives the impression that the bottom could be not too far. C urrency RSX is naturally strongly linked to the performance of the Russian rouble. The correlation between RSX and USDRUB over the last couple of years has been negative 0.76. This implies that in most cases, RSX goes up when the rouble strengthens against the US dollar. The inverse relationship is also visible on the following chart: (click to enlarge) Source: Google Finance In addition, a simple linear regression with RSX as an independent variable and USDRUB as the explanatory variable indicates that the fund tends to go down 1.06% for every 1.00% increase in USDRUB. As USDRUB has more than doubled in the last two years, I would argue that there is a higher probability of retracement rather than continuation to new highs. Geopolitics Thinking about the worst geopolitical events, Russia appears to have taken almost every hit possible. Its military intervention in Ukraine in the beginning of 2014 was followed by international sanctions that are now taking toll. It has been later accused of involvement in downing a passenger plane, further damaging the country’s reputation internationally. Most recently, Russia started carrying out air strikes in Syria, which resulted in a retaliatory act of terror. My take on this is that investors now firmly believe one can expect anything from Russia. The actions of its government are hard to predict, and events can quickly take a turn in the least anticipated direction. All this risk gets discounted into the stock prices, offering opportunities for those who are prepared to stomach it. Summary I believe RSX presents an attractive investment opportunity at a time when US equities are trading near their highest levels ever. Russian stocks have the lowest valuations worldwide. The oil price is close to the lows seen at the peak of the financial crisis. The Russian rouble is as weak against the dollar as ever. And the geopolitical picture for the country is so gloomy that it is not easy to come up with a worse scenario. Combining all these elements together, Russia does look like a top pick for a reversal play. It may not be a suitable option if you are a light sleeper, though.