Survival of the fittest
Russia is a survivor. Over the past two years, we’ve seen the economy survive:
- Trade and economic sanctions imposed by the West
- Oil price plunge to as low as $35 a barrel
- Two years in recession
It is for this reason that Gerardo Rodriguez, fund manager with BlackRock (BLK) says his company is “overweight Russian equities”. “”What gets all of the attention regarding Russia (ERUS) is the geopolitics. But for all the negative opinion you can have out there on Russia, from an economic standpoint it’s been amazing,” said Rodriguez.
According to Kyle Bass, who manages the $1.8 billion hedge fund Hayman Capital, Russia’s finance ministry is one of the most talented economic thinkers. His thought rests on the fact that the economy took the oil price adjustment “all in one year, all in their currency,” while maintaining their current account surplus.
Russian equity has been outperforming emerging markets
Equity markets in Russia have been outperforming all peer emerging market (VWO) economies over the past year. While the iShares MSCI Emerging Markets ETF (EEM) has returned about 22% over the last year (as of January 30 close), the VanEck Vectors Russia ETF (RSX) has risen by about 50%. Meanwhile, the non-commodity, non-financial Russia tracking fund, the VanEck Vectors Russia Small-Cap ETF (RSXJ) has leaped by 136% over the same period. Russian oil companies and banks have been beaten down a bit on account of sanctions imposed on them in 2014 by Western nations.
Of particular note is the fact that the remarkable performance of late has occurred when oil still trades low. If the price of oil recovers further, fund managers at BlackRock (BLK) expect this oil-rich nation to move higher. Blackrock’s January 2017 Emerging market commentary report reads, “A combination of attractive relative valuations and improving fundamentals will support Indonesia and Russia.” The report went on to state that the fund is underweight on Korean and Mexican equity.
A new fund with a good weight on Russia hit the US capital markets on December 28, 2016. GQG Partners launched their GQG Partners Emerging Markets Equity Fund (GQGPX). With over $20 million in assets under management, the fund is already up 3.9% since January 3, 2017.