Russia (RUS) : A strong uptrend

The ETF Lyxor RUS (Russia), created in 05/2007, is listed in Euro on Euronext and seeks to replicate the Dow Jones Russia GDR $ index consisting of 18 Russian stocks. The Dow Jones Russia GDR Index is an index that measures the performance of 85% of GDRs (very close to ADRs, an instrument of listing abroad for a non-US or UK company) traded on the London Stock Exchange, with the largest floating capitalization. The index is weighted by the free-float capitalization of each GDR.

The expenses of this ETF are 0.65% and the AUM of approximately 371M€. Replication is indirect (via Swap) and there is a policy of capitalization of dividends.

Alternative ETFs: RSX (Vaneck Vector in USD), ERUS ( iShares in USD)

 

Index & components

 The ETF RUS is made up of only 18 companies, so it is very narrow compared to other national indices. However, the Russian index is fairly representative of the country's economy, highly concentrated on energy, whose weighting is about 63% due to the presence of the giants Gazprom, Loukoil and Rosneft, while the banking sector accounts for 19% including two large banks, Sberbank and VTB Bank, the remaining 18% ​​are divided between mining companies and industrial companies (consumer goods and technology).

Over the past 10 years, the performance of the Russian index has been negative, which is due to the fall in oil prices and the Western sanctions following the annexation of the Crimea. The Russian economy is at about the same level as Spain, with a GDP of about $ 1200 billion, a diversified economy based on raw materials (gas, oil, minerals, diamonds), and mainly European exports, as well as domestic consumption, which tends to increase gradually, while industry employs nearly 30% of the population, mainly in the chemical, metallurgical and defense sectors. By 2015, Russia has sunk into the crisis that began in 2014, mainly because of the fall in oil prices that weighs on hydrocarbon revenues, even though non-oil revenues are penalized by weak activity and sanctions that continue to impact the economy. The situation deteriorated in 2015, with the economy entering recession (-3.8%). Inflation continued to rise and a banking crisis hit more than 70 Russian banks, as a result the country's financial reserves melted, the budget deficit widened and the volatility of the ruble worsened. This context continued in 2016 while at the same time easing somewhat (-0.6%), with private consumption, the main driver of activity, remaining constrained. Russia has emerged from the recession in 2017, but it is not due to virtually non-existent reforms and the challenges remain: lack of competitiveness, under-investment, low production capacity, dependence on raw materials, poor business climate, lack of structural reforms, aging population and authoritarian drift of Vladimir Putin.

Russia is currently enjoying a lull with the recovery of oil prices around $ 60 after the agreement with OPEC and a stabilization of supply. Russia sees its situation on the external scene improving somewhat, due to a certain success in Syria and a stabilization of its relations with Europe. The chaotic policy of the United States led by D.Trump also allows W. Putin's Russia to finally appear as a more reasonable actor. A remoteness from Europe and the USA could lead to a later rapprochement between Europe and Russia and to envisage a lifting of sanctions on condition that favorable developments emerge in Ukraine.

 

Latest developments

The Russian index posted a growth of 4.4% in 2018, significantly higher than the STOXX600 (-10.7%), and continues its momentum in 2019 with a rise of 12.9% since the beginning of the year. This good behavior is due to the Russian growth, stronger than anticipated. After rising by 1.7% over the first ten months, growth accelerated suddenly at the end of last year to reach 2.3% in 2018. A higher figure than that of 2017 (1.6 %) but especially than the forecasts of the Ministry of Economy (1.8%) and the IMF (1.7%) which contradicts the image of an economy which, in recovery since the recession of 2015-2016, seemed blocked under the 2% threshold and was struggling to break out of stagnation. This performance seems to be due to construction that has grown strongly due to government programs, energy and and the soccer world cup that seems to have benefited many service activities.