Weak economic performance and fears of additional sanctions have traders selling Russian stocks lately. In the one month period ended August 9, the MVIS Russia Index lost almost 9 percent.
The selloff deepened after Washington said it would impose fresh sanctions on Moscow. The White House said that new sanctions were needed after it determined Moscow had used a nerve agent against a former Russian agent and his daughter in Britain, something the Kremlin has repeatedly denied. Russia’s embassy in the U.S. called the measures “draconian”. Sanctions on Russia from the Obama era also remain in place.
Russian authorities talked down the possible negative effects of new U.S. sanctions, saying they have tools to maintain financial stability, after the latest round of U.S. penalties sent the Ruble plunging to a two-year low.
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The sanctions will apply to certain sections of the tech industry, but Russian tech may not be the only victim. Russian banks were also hit. Sberbank, Russia’s biggest lender fell 1.8% lower last week, a total of 22% drop since April 1st, while its biggest domestic rival Bank VTB also traded lower.
So with the rope being tightened on Russia ̶ many politicians in both parties want to toughen sanctions even further ̶ the bear trade is a gimmee, right? Not so fast. In fact many high profile investors have shown a willingness to invest despite the dangers. Investor Jim Rogers, a one-time partner of George Soros, has taken large positions in Russia. Other U.S. investors have found Russian stocks to buy as well.
Traders who can stomach the substantial geopolitical risks see a big pay day. Russian stocks have become extremely cheap. Of the major countries in the world, Russia has become one of the cheapest on measures such as P/E ratio and P/B (price-to-book) ratio. The country’s stocks also boast one of the highest average dividend yields. The current average P/E ratio comes in at just above 7.5. It had fallen as low as 3.5 times earnings following the recent slump in oil prices. This compares to almost 22 in the United States.
Only one thing is for sure. Whether you’re in, or out of love with Russia, if you’re a trader, there’s a Daily 3X Leveraged ETF for you.
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