Russian Stocks Collapse

September 16, 2008

SAN DIEGO (ETFguide.com) - Don’t look now, but Russian stocks are getting massacred.

The RTS index has fallen around 50 percent after peaking in May. The dramatic swoon has wiped away roughly $750 billion in capitalization.

The war in Georgia hasn’t helped and neither has the aggressive politicking of Russia’s government leaders. And foreign investors can’t withdraw their capital investments fast enough.

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Overtones of Russia’s last financial crisis in 1998 are brewing. It was then that investors fled the market by selling rubles and Russian assets.

Today, declining oil prices and lower worldwide demand for commodities are just part of the problem.   

Exacerbating Russia’s falling stock market has been bank margin calls. Companies that pledged shares of stock as collateral for loans have been forced to liquidate their positions, setting off a vicious cycle of selling.

Around 80 percent of the Russian stock market is tied to companies dependent upon bustling commodity markets.

The Market Vectors Russia ETF (NYSEArca: RSX) has 65 percent of its portfolio in companies involved in just two industry sectors; Energy and industrial materials. The fund has declined a staggering 40.1 percent year-to-date. Top holdings are Evraz Group, Gazprom Neft, and Lukoil Company.

Russia is one of the four members of the “BRIC” nations. This is a conglomerate of meg-emerging markets countries that also include Brazil, India, and China.

The Claymore/BNY BRIC ETF (AMEX: EEB) is off by 34.9 percent. Through mid-year, Russia had just a 5 percent weighting in the BRIC index, while Brazilian stocks accounted for almost 60 percent of the BRIC’s constituents.