(Bloomberg) -- Investors betting on a rebound in Russian stocks are piling into the benchmark exchange-traded fund for the market at the fastest pace in six months.
They poured $183 million into the Market Vectors Russia ETF in the eight days through Sept. 23, the longest streak of daily inflows since March, data compiled by Bloomberg show. The shares gained 2.3% to $23.98 yesterday, reducing their decline to 1.9% since President Vladimir Putin moved to annex the Black Sea peninsula of Crimea in late February.
The ETF and the Bloomberg Russia-US Equity Index rallied amid mounting speculation that Ukraine will reach a peace accord with rebels as a cease-fire entered its 20th day. NATO said on Sept. 22 that Russia, which denies involvement in the conflict, has embarked on a significant withdrawal of its forces from the former Soviet republic.
NATO, one of the most outspoken critics of Russia, admits that the nation is pulling back, which means the conflict isnt deteriorating and theres hope for a solution, Ilya Kravets, the New York-based director of investment research at Daniloff Capital, said by phone yesterday. Its not getting worse and is beginning to get better. Russia is clearly sending positive signals.
The benchmark Micex Index rallied for a second day in Moscow, gaining 0.9% to 1,441.83. The gauge trades at 5 times estimated 12-month earnings, the cheapest in emerging markets.
CEASE-FIRE
While the truce President Petro Poroshenko reached with the pro-Russian rebels in eastern Ukraine has held since Sept. 5, there has still been sporadic fighting. A military spokesman told reporters in Kiev yesterday that the separatists shelled a government held-airport and a checkpoint, wounding eight servicemen. President Barack Obama, speaking at the General Assembly of the United Nations, said Russia must choose peace to have U.S. sanctions lifted.
The Market Vectors Russia ETF is the third-most volatile among 184 U.S.-based exchange-traded equity funds of at least $1 billion in the last six months, data compiled by Bloomberg show. The gauges 50-day historical volatility rose to 35% yesterday, the highest level since May 27.
Investors in Russian equities have endured wide price swings amid the tension between Ukraine and Russia and the international response to the conflict. The U.S. and European Union have imposed sanctions including financing restrictions and export bans that have squelched growth in the countrys $2.1 trillion economy.
GROWTH FORECAST
Volatility creates an opportunity, Leo Kelly, managing director of HighTowers Kelly Wealth Management with $1.3 billion in assets, said in an interview at Bloombergs headquarters in New York on Sept. 23. Sooner or later, Putin is going to be faced with a situation where either he pulls back or the economy spirals into massive recession, and when he does pull back, well see a big rally in the Russian market.
Russias gross domestic product will expand 0.25% this year, the worst performance since it shrank 7.8% in 2009, according to the median forecast of 38 analysts surveyed by Bloomberg. As of Sept. 19, Bank of America forecast no growth in GDP in 2015, while Barclays Plc projected a 0.5% contraction, the data show.
Kelly, who hasnt held Russian equities for a decade, said he is looking closely at the market and may start buying as soon as this year.
Futures on the dollar-denominated RTS index expiring this month increased 0.6% to 118,690 in U.S. hours yesterday. The Bloomberg gauge of the most actively traded Russian stocks in the U.S. advanced 1.3% to 83.31.
There is withdrawal of Russian troops, peace talks are ongoing, there is this general feeling that Russia is not interested in making the situation in Ukraine more critical, and this adds some confidence, Aleksei Belkin, who helps manage about $4 billion as chief investment officer at Moscow-based Kapital Asset Management LLC, said by phone yesterday. Some investors are hoping the EU might start reviewing and removing restrictions against Russia.
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