Sanctions by the West have hurt the ruble and Russian stocks. Now we see that Russian stocks fall again, as President Obama indicates that sanctions have been extended for a year.
The biggest exchange-traded fund tracking Russian stocks dropped the most in a week after President Barack Obama said the U.S. will extend some sanctions linked to the Ukraine conflict and as oil prices declined.
The Market Vectors Russia ETF tumbled 2.8 percent to $17.43 in New York Wednesday. Brent crude, the oil grade traders use to price the country’s main export blend, slid 0.8 percent to $60.55 a barrel after dipping below $60. OAO Sberbank sank 4.1 percent and OAO Mobile TeleSystems fell 4.6 percent, leading declines among Russian American depositary receipts.
The ETF and stocks retreated as Obama, in a notice to Congress, said visa bans and asset freezes on Russians the U.S. believes to be involved in the Ukraine crisis will be extended by a year. The sanctions, which were set to expire this month, were initially introduced after President Vladimir Putin annexed Crimea in March 2014. The U.S. and its allies have imposed other measures, including international financing restrictions that are helping push the country toward a recession.
So long as Russian holds on to Crimea and actively supports separatists in Ukraine sanctions will likely continue keeping Russian stocks down. And then there is the issue of oil.
Oil, the Ruble and Russian Stocks
Forbes offers the opinion that recent oil forecasts will not please Russian investors.
Russia investors aren’t going to get any near-term relief from oil prices. Following a short spike in oil in recent weeks, crude is expected to get cheaper in the days ahead, Barclays Capital said in a report released on Monday.
Falling oil prices is bad for Russia day traders, who have been buying and selling based on a combination of geopolitics and the direction of crude oil futures. Looked at over a short period, the Market Vectors Russia (RSX) exchange traded fund by Van Eck Global has decoupled from oil year-to-date. RSX is up. Oil is down. But the upside there has been entirely due to the fighting in Ukraine. Talks of peace deals and renewed fighting with pro-Russia rebels in eastern Ukraine keep RSX volatile way more than oil.
However, over a longer period of time, the popular Market Vectors ETF tracks oil quite closely. Over a five year period, the Russia ETF is down 44% while the S&P GSCI Crude Oil Index is down 52%.
Short term trading can be profitable if there are two possibilities for a stock, up and down. When the prevailing sentiment is that Russian stocks will fall traders had better be shorting those stocks or staying out of the market.
How about the Very Long Term?
The so called blood in the streets view of stock trading might have it that now is the time to invest as Russian stocks fall. Certainly Exxon’s approach is to take the long view in its dealings with Russia.
Exxon Mobil Corp. shook off the chill of sanctions and continued to snap up drilling rights in Russia last year, giving it more exploration holdings in President Vladimir Putin’s backyard than in the United States.
Taking the long view, Irving-based Exxon boosted its Russian holdings to 63.7 million acres in 2014 from 11.4 million at the end of 2013, according to data from U.S. regulatory filings. That dwarfs the 14.6 million acres of rights Exxon holds in the U.S., which until last year was its largest exploration prospect.
While U.S. and European Union sanctions against Russia forced Exxon to shut down an arctic drilling project in October, there were no legal obstacles barring the company from staking claims to areas that could yield tens of billions of barrels in coming decades.
The point is that as Russian stocks fall there are deals to be had by anyone with enough cash and the ability to wait out the current difficulties.
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