The Market Vectors Russia ETF (
) has erased gains for this year after having fallen by 25.2% over
the last twelve months.
[caption id="attachment_55021" align="alignright" width="300"
caption="The main street of St. Petersburg: Neksky Prospekt"]
Despite a fairly resilient economic environment, the Russian
market has underperformed both the iShares MSCI Emerging Markets
) and the S&P500 over the last year.
GDP growth in the first quarter
surprised investors with a gain of 4.9% as consumers maintained
their support on high oil prices and increased government spending
ahead of the elections.
The economy has weakened slightly since the first quarter with
both industrial production and fixed-asset investment declining
Despite an extremely weak export environment and falling oil
prices, Russia has one thing going for it relative to other
markets. The central bank maintained its
at 8.0% for the fifth consecutive month even as global growth
weakens and inflation falls to just 3.6% on an annualized
Pricing pressures are well below the 6.1% pace set last year and
are the lowest since the early 1990's. This gives the monetary
authorities a tremendous amount of room for stimulus should
conditions further deteriorate.
While rates are also high in other BRIC markets like Brazil and
India, quickening inflation may detract from economic
Headline risks out of Europe and lower commodity prices may
continue to push the index lower in the short-term, but investors
should benefit from patience as the fund pays a dividend yield of
1.95% and trades around six times trailing earnings of stocks in
Valuations are attractive versus that of around 13.5 times for
the S&P500 and 10.0 times for companies in the broader emerging
Additionally, the market could still see a positive increase in
sentiment leading up to a
large sale of state assets
expected in June of this year.