Source: Goodfon

Instrument

The VanEck Vectors Russia ETF (BATS:RSX) is a fund that offers exposure to equities from Russia, which include publicly-traded companies that are incorporated in Russia or that are incorporated outside of Russia but have at least 50% of their revenues/related assets in Russia.

Source: VanEck

Note: The RTS Index is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange, calculated in US dollars (Wikipedia).

Analysis

As already mentioned, the RSX is tied to shares of Russian companies that are traded in rubles. Therefore, the value of the Russian currency considerably influences the price of the fund. And in this context, I want to draw attention to some important points.

Since the beginning of June, the ruble has fallen by almost 16% against the dollar. This had a proportional, negative impact on the price of the RSX fund. But it looks like the ruble-weakening phase has come to an end and now we can even expect its strengthening. This will prove to be a supporting factor for the price of the fund.

Let’s start with the fact that for the first time in many years, the Russian government has set limits on the size of the net foreign assets of state-owned companies at the level of October 2018. Such an instruction was received, for example, by such major Russian companies as Gazprom (OTCPK:OGZPY), Rosneft (OTCPK:RNFTF) and Alrosa (OTC:ARRLF). Accordingly, this will force Russian state-owned companies to convert surplus foreign assets into rubles. Of course, this will lead to an increase in demand for the ruble in the domestic market.

Further, on October 1, the Central Bank of Russia began selling the currency it received from the sale of Sberbank (OTCPK:SBRCY). Currencies worth 2.9 billion rubles (~$38 mln) will be sold