After nearly two decades of negotiations, Russia is
finally a member
of the World Trade Organization (WTO). This is a landmark event not
only for Russia and its quest to remain a global power, but also
for the global free-trade movement, as it finally brings the last
G-20 member into the picture.
The ascension of Russia into the organization looks to
liberalize trade policies in the nation, reducing tariffs on
imported goods and decreasing protections for home-grown
industries. The entry of Russia also looks to give outsize
investors some level of recourse with Russian trade practices and
generally make the country have a more favorable climate for
foreign investment (read
Is Now The Time To Buy Russia ETFs?
The "WTO accession is a major step for Russia's further
integration into the world economy,"
European Union Trade Commissioner Karel De Gucht
in an e-mailed
. "It will facilitate investment and trade, help to accelerate the
modernization of the Russian economy and offer plenty of business
opportunities for both Russian and European companies."
While this might sound like an undeniably good thing for Russia,
there are still some concerns over the nation and its economy now
that it is in the WTO. Many Russian firms are hopelessly corrupt,
inefficient, or otherwise unprepared for global competition. These
companies could be in for a rough ride as duties are slashed on
foreign imports over the next few months and years (read
Why Russia ETFs Are Not A Debt Crisis Safe
Some investors and economists are skeptical that the WTO will
have the same transformative effect on Russia that the organization
had on China. Russia doesn't have anywhere near the size of cheap
labor pools that China has, so it is questionable what segments
foreign investors will come into in the near future.
Fortunately, there is a plus side to this situation as well
though. The cheaper products, thanks to foreign competition,
will likely lower prices for consumers
in a number of key segments. This will put more rubles back in the
pockets of everyday Russians and could create a small consumer boom
as a result.
Furthermore, once Russian firms get back up to international
standards, they will be more easily able to tap into lucrative
European markets right at their doorstep. Plus with the added
investor protections and complaint process that goes with WTO
membership, some sectors could see a foreign investment boost,
driving up stock prices across the board in the country.
After all, Russia remains an interesting emerging market that is
unlike any of the other three major BRIC economies. Russia is far
wealthier on average and its immense hydrocarbon reserves make the
country an energy superpower (see
Play an Oil Bull with These Three Emerging Market
Still, the nation is very corrupt and inefficient,
suggesting that it needs a boost in order to compete for investing
dollars when put up against its more quickly growing and dynamic
emerging market peers. Hopefully, the WTO membership will be the
spark that Russia needs to get this process underway, helping the
country to become a great investing destination much like the rest
of the BRIC bloc (see more in the
For investors seeking to make a play on Russia, there are few
ETF options which we have briefly highlighted below. While all
target Russia, they do so in slightly different ways in terms of
market weights, number of holdings, expenses and sector exposure.
Still all have a heavy focus on the basic materials industries
although this could change if the WTO helps Russia get its act
together over the long term:
Market Vectors Russia ETF (
- This fund from Van Eck is easily the most popular in the Russia
ETF space, having amassed more than $1.8 billion in AUM and
trading nearly five million shares a day. While the product has a
heavy focus on energy-the sector makes up 40% of the
assets-holdings are relatively well spread out among component
firms with eight companies making up at least 5% of assets.
iShares MSCI Russia Capped Index Fund (
- This fund is currently the cheapest choice in the Russia ETF
world, charging investors 58 basis points a year in fees. Energy
firms account for nearly 55% of the portfolio, while basic
materials and financials combine to account for another 25% of
ERUS as well.
SPDR S&P Russia ETF (
This relatively new Russia ETF is pretty low cost but doesn't
have that great of volume at roughly 44,000 shares a day.
Furthermore the product is heavily concentrated in a few names
like Gazprom and Lukoil as these two make up nearly 40% of assets
by themselves, suggesting that they will be big drivers of RBL's
Market Vectors Russia Small-Cap ETF (
- This Market Vectors product is the only one that focuses in on
small caps from the country, offering a different cap level of
exposure than many of the other products on this list.
Industrials are the top sector, but they are closely trailed by
energy (22%), and basic materials (12%) in the fund's 31 stock
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
ISHARS-MS RUSSA (ERUS): ETF Research Reports
SPDR-SP RUSSIA (RBL): ETF Research Reports
MKT VEC-RUSSIA (RSX): ETF Research Reports
MKT-VEC RUS SC (RSXJ): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report