Bearish bets on the biggest exchange-traded fund investing in Russian stocks have dropped to the lowest levels in six months as crude prices hold above $60 a barrel and the ruble bounces back from the worst annual slump since 1998.
Short interest in the Market Vectors Russia ETF was about 3 percent last week. That compares with 9 percent in mid-May and is near the lowest level this year, data compiled by Markit Group Ltd. show. The fund’s price rose 2.5 percent to $18.61 in New York in the five days through Friday, a second straight weekly gain.
Brent crude’s 35 percent rebound from a six-year low in January and the ruble’s world-beating rally has short sellers, who aim to profit from price drops, convinced that the cheapest stocks in emerging markets won’t fall further. The benchmark Micex Index has risen 19 percent this year, while the currency has strengthened 12 percent. Russian assets are gaining and short interest in the ETF is dropping even as European leaders renewed sanctions amid a flareup in the Ukraine conflict.
“The downside is pretty limited,” according to Aleksei Belkin, the chief investment officer at Kapital Asset Management LLC. Russian stock valuations already reflect the sanctions and oil risk, reducing the potential for a “negative surprise” that might drive stocks lower and benefit short sellers, he said.
‘Volatile Market’
Russian stocks fell the most in the world last year and the ruble tumbled 46 percent as a drop in oil, the country’s biggest export, combined with international sanctions pushed the economy toward its first recession since 2009. President Vladimir Putin said in a speech Friday that the “deep crisis” many were predicting has not happened as inflation is decelerating, the budget is sustainable, and unemployment is low at 5.8 percent.
Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said the outlook for Russian stocks is still very weak even with higher oil prices and a stronger currency. “Erratic” monetary policy as the central bank cuts rates after raising them to 17 percent in an emergency meeting in December and continued instability in Ukraine are among the biggest risks, he said.
“This is a very, very volatile market,” Spiro said by phone Friday. “Other emerging markets in Asia are a lot more attractive right now.”
Stocks on the Micex Index sell for an average 6.7 times estimated earnings, the lowest multiple among emerging-market benchmarks. Energy companies, which make up more than 43 percent of the Market Vectors ETF, have posted the third-best performance among 10 industry groups in the MSCI Russia Index this year, rallying 21 percent.
‘Psychological Plus’
Stocks in the Micex Index offer some of the highest dividend yields in the world, said Kirill Yankovskiy, director of equity sales at Otkritie Capital Ltd. in London. The oil price rebound and relatively stable ruble are a “major psychological plus” for investors, Spiro said.
A Bloomberg index of the most-traded Russian stocks in the U.S. rose 2.4 percent to 59.25 last week in the biggest gain since April 17. Oil producer OAO Surgutneftegas rallied 9.1 percent to $6.23 in the best performance on the gauge. Yandex NV, Russia’s biggest search engine, slumped 4.9 percent to $16.77, the biggest decline.
Futures contracts on the dollar-denominated RTS Index expiring in September rose 0.2 percent to 93,840 in U.S. hours Friday. A measure of projected price swings in futures fell 2.3 percent to the lowest level in four weeks.
original source: http://www.bloomberg.com/news/articles/2015-06-21/u-s-bears-retreat-from-russia-stock-etf-as-oil-ruble-stabilize