There was a time when investing in Russian corporate was a
dubious combination of hard to and not advisable for most
investors, even professionals.
In 2004, The Economist
ran a story about Russian corporates
, noting demand for the asset class was rapidly sinking.
Highlighting how dire the situation was at the time, The
Economist story was simply titled "Ugh!"
Less than a decade later, things have changed. While R in the
famous BRIC acronym must shed a reputation for political
corruption and corporate cronyism, the country's financial
markets are showing signs of liberalization. Policymakers there
have not been shy about their desire for increased foreign
Last year, the Russian government made its sovereign debt more
accessible by adding Euroclear and Clearstream to the list of
eligible clearing houses.
Euroclear recently confirmed Russian corporates are up next
and that could be a boon for a market where foreigners control
less than 10 percent of assets,
according to Reuters
In another sign that the Russian corporate bond renaissance is
in full bloom, a new ETF devoted exclusively to the asset class
debuted yesterday, the Finex Tradable Russian Corporate Bonds
Before ETF naysayers and pundits assail the ETF as too risky
or too narrowly focused, it must be noted that the Finex Tradable
Russian Corporate Bonds Ucits ETF trades on the London Stock
Exchange, not in the U.S.
However, the success of the Finex Tradable Russian Corporate
Bonds Ucits ETF could be a barometer for whether an ETF tracking
Russian corporate debt will be listed in the U.S. Investors do
not need to bet on the debut of Russian corporate bond ETF in the
U.S., an unlikely near-term proposition, but there are compelling
reasons to consider the existing funds with exposure to Russian
Not only do emerging markets corporates usually feature
superior credit quality relative to developed market equivalents,
but those EM bonds
often have lower durations
, meaning they are less sensitive to interest rate changes.
At the end of January, the average yield to maturity on
Russian corporates was 5.11 percent with an average duration of
just over five years,
according to WisdomTree data
That is a better yield to maturity than what can be had on
comparable Mexican or Turkish corporate bonds with a lower
duration than what is found on equivalent Brazilian and Mexican
Investors looking to tap into the favorable tailwinds for
Russian company-issued debt have a few ETF options, though stands
as most credible. The WisdomTree Emerging Markets Corporate Bond
) devotes nearly 21 percent of its weight to Russian corporates.
Only Brazil receives a larger allocation in EMCB.
Not only due Russian corporate issues feature high yields, but
issuer debt levels are lower than what is seen in other
developing nations, giving investors some degree of safety.
Important to note is the fact that in 2012, Russian firms issued
about $46 billion in corporate bonds compared with $21.7 billion
according to the Financial Times
Demand was robust, but issuance may not be as high this year.
Russian companies need to finance just $9.5 billion in foreign
debt this year,
Dow Jones reported
It is widely expected Russian financial services firms will
sell fewer corporate bonds and while OAO Rosneft, Russia's
largest oil company, is forecast to issue about $7 billion to
help pay for its purchase of TNK-BP, a scarcity premium could
creep into the market.
That could lead to upside for EMCB, which has an average yield
to maturity of 4.52 percent and an effective duration of 6.1
years. EMCB's rivals, the iShares Emerging Markets Corporate Bond
) and the SPDR BofA Merrill Lynch Emerging Markets Corporate Bond
), feature exposure to Russia though not on par with that of the
Conservative investors that want a small taste of Russian
corporates should consider the WisdomTree Global Corporate Bond
). That newly minted ETF has a weight of almost 4.5 percent to
For more on
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