The Xchange Blog

Little Love for Russia

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.

RUSS and RUSL Performance
Russia ETF Performance
Data Range: 7/9/2018 – 8/9/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For standardized performance and the most recent month-end performance, click here.

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.

 

Related Leveraged ETFs

 


Each leveraged ETF seeks investment results that are 300% of the return of its benchmark index for a single day. Each Fund should not be expected to provide returns which are three times the return of benchmark’s cumulative return for periods greater than a day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.
 
Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the return of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk and risks specific to Russian securities, such as Emerging Markets Risk, Energy Securities Risk, for the Direxion Daily Russia Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Russia Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
 
MVIS Russia Index (MVRSXTR) – A rules-based index, intended to represent the overall performance of publically traded companies that are domiciled and primarily listed on an exchange in Russia or that are not Russian companies, but nonetheless generate at least 50% of their revenues in Russia. One cannot directly invest in an index.