Fresh sanctions imposed on several Russian enterprises by the U.S. government earlier in the month have dealt significant blow to exchange traded funds (ETFs) with exposure to Russian equities, a new report from ETF analytics platform Track Insight shows.
After the U.S. Treasury announced on April 6 it is imposing new sanctions on seven Russian oligarchs and 12 companies they own or control, Russia stock ETFs have fallen back around 10%. The sanctions were imposed reportedly for the Russians’ “ongoing and increasingly brazen malign”. The move marks the toughest sanctions against Russia since Donald Trump became U.S. President and affect President Vladimir Putin’s inner circle, including his son-in-law.
The news caused the biggest daily stop in Russian equity ETFs in several years, while Russia’s RTS index suffered an 11% fall in one day. Some open-ended funds with exposure to Russia were hit even more – for example, the UK’s only fund investing solely in Russian equities, Neptune Russia and Greater Russia, fell 15.6% over two days.
The sanctions were partly triggered by escalating tensions between the U.S. and Russia over a suspected chemical attack in Syria, with the American government accusing Putin of supporting Syrian President Bashar Al-Assad. The Trump administration signaled Sunday that a new set of anti-Russia sanctions over Syria could be coming in a matter of days.
The U.S. has also put pressure on UK banks, urging them to refuse to conduct business with the sanctioned companies and individuals if they want to continue their working relationship with the U.S., in an attempt to deal a fresh blow to the Russian elite.
However, since then Russian markets and funds have seen a rebound in performance, as Trump’s threats had an unexpected consequence that played into Russia’s hands, having inadvertently raised the price of oil. The price of Brent crude oil jumped to a three-year high last week on the back of escalating tensions in the Middle East (and hovered around $72.50 per barrel on Monday).
For funds that are made up of 40% Russia-focused oil and gas companies, such a rise is extremely beneficial. As a results, April 12 saw Russian Stock ETFs rise some 4.5%, bringing the total return over the year to date to 17.6% – still far higher than developed equities, the report from Track Insight says.