Global Rally in Equity Markets Led by Russia, Eastern Europe

Equity markets in Russia and Eastern Europe have pulled well ahead of the field in recent weeks, amid solid gains in the sector globally, Seeking Alpha writes.

The top performer through Wednesday was the Central and Eastern Europe Fund (CEE), which is up a blistering 25.4% so far this year. CEE, the only U.S.-listed fund that targets Russia and Eastern European markets, had been pacing the rise in U.S. equities for much of this year before a breakout rally started in mid-May.

Most of CEE’s surge is due to Russian shares, which dominate the fund’s portfolio. Several factors account for the country’s rally, including higher oil prices in recent years. Oil casts a long shadow over Russia’s economy, for good and ill, and at the moment, those shadows tend to be positive, Seeking Alpha writes.

There’s also a growing perception that political risk has softened for Russia, if only slightly. “These big financial-sector sanctions that people were worried about – that never materialized,” analyst Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics, told the New York Times last week.

CEE also holds stocks in Eastern Europe: Poland and Hungary are the second- and third-largest country weights at 14% and 10%, respectively, as of the end of this year’s first quarter. But Russia dominates with 67%.

The bullish influence of Russia for CEE is clear when we compare the fund with iShares MSCI Russia Fund, a Russia-focused ETF. In the chart below (which also includes the SPDR S&P 500 for U.S. equity market perspective), ERUS’s blowout upside performance is conspicuous of late, analysts say.