Performance of Russian equities

The Russian economy (ERUS) seemed to overcome the worries of Western sanctions (SPY) (HEDJ) and the slump in oil (USO) (UCO) prices when Russian equities soared last year. However, the stocks have struggled to maintain the uptrend as geopolitical events and oil prices have continued to impact their 2017 performances. Russian stocks (RSX) surged in 2016 after the US election since investors expected improved relations between newly elected President Donald Trump and Russian President Vladimir Putin. The benchmark Russian equity index, the MICEX (Moscow Exchange), rose about 26.0% in 2016. The surge in oil prices since 1Q16 have also provided the much-needed support for economic activity in Russia.

In the graph below, you can see the performance of Russian equities in 2017.

Are Russian Equities Feeling the Slump in Oil Prices in 2017?

Market performance in 2017

As you can see in the graph, the MICEX has fallen about 16.0% so far in 2017 as of June 2, 2017. The recent slump in oil prices seems to have affected the rise in stocks last year. Geopolitical tensions in Syria also continue to hamper relations with the Western world.

Russian stocks fell after the US (SPY) military strike on Syria in April 2017, which followed the chemical attack on Syrian civilians. Russia’s intervention in the civil war in Syria again soured Russia’s relations with the West (SPY) (EWU) (VGK). The likelihood that sanctions will continue will affect Russia’s economic activity in 2017.

Russia’s reliance on exports and oil

Over the years, the Russian economy (RSX) has been highly dependent on external demand. Geopolitical tensions will likely impact its trade and economic activity. Investors interested in Russian stocks (RUSS) should watch the geopolitical developments surrounding Russia to assess its impact on their investments.

The recent slump in oil prices also seems to be affecting the momentum in stocks gained last year. Uncertainty about extending the oil supply cut in OPEC’s (Organization of the Petroleum Exporting Countries) deal continues to impact oil prices in 2017. The iShares MSCI Russia Capped (ERUS), which outperformed the emerging market index (EEM) last year, has fallen about 13.0% so far in 2017 as of June 2, 2017.

To find out more, be sure to read Why OPEC Needs to Extend Production Cut Deal beyond 2017.

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