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Will U.S. Sanctions Begin To Hurt Russian ETFs?

From Zacks: Russia ETFs, which have had a sound 2016 on recovering economic fundamentals, may face threat from new U.S. sanctions.

This is largely because of the retaliation against the Russian government for allegedly resorting to hacks and sending content to WikiLeaks to help President-elect Donald Trump win the race to the White House. However, Trump has brushed off such assumptions (read: Third Presidential Debate Puts These ETFs in Focus).

Due to the suspected intervention, Obama administration plans to announce a host of reactive measures against Russia and its president. As expected, Kremlin rubbished all accusations. Notably, the relationship between the countries has been quite stressed after the latter annexed Crimea from Ukraine in early 2014 and the U.S. launched sanctions against Russia’s all-important energy, banking and defense sectors (read: Guide to Russia ETF Investing).

The new measures would be revisions of a 2015 executive order. As per the source, “the executive order allows the president to levy economic sanctions against hackers based overseas who are beyond the reach of law enforcement.” The order also enables the government to put an embargo on “any assets held by the individuals in American banks or other financial institutions.”

Republicans John McCain and Lindsey Graham along with Democrat Amy Klobuchar also expressed their support for the sanctions on December 28. The Obama administration wants the sanctions to be effective before the term ends in about three weeks. Since the previous sanctions caused severe economic losses for Russia, investors might worry about investing in Russia right now.

What Lies Ahead for Russia ETFs?

Despite the apprehensions, one should note that though the possibilities of the Obama administration imposing new restrictions are high, the Russia-friendly Trump administration may repeal those.

In fact, there is information that the two leaders have already discussed issues like “shared threats, strategic economic issues and the historical US-Russia relationship.” Both presidents put stress on fighting terrorism together (read: Will Russia ETFs Prosper Under Trump Presidency?).

If this was not enough, Trump believes that several American cronies are benefiting from partnerships like the trans-Atlantic efforts, be it on the security front or trade. In fact, the North Atlantic Treaty Organization (NATO) is likely to be in trouble when Trump takes office. This should cheer Russia as the alliance is preparing to venture into Eastern Europe with more forces trying to strengthen defenses against Russia.

So, Russia ETFs like VanEck Vectors Russia ETF (RSXFree Report) and VanEck Vectors Russia Small-Cap ETF (RSXJFree Report) may not see as rough a stretch as was witnessed during the previous sanctions. Plus, a possible recovery in oil prices in 2017 on the OPEC output cut deal can bode well for the Russian economy. This is because oil is seemingly the main commodity of Russia with about half of the nation’s exports in terms of value coming from the energy sector (read: 5 Country ETFs to Benefit from Crude Oil’s Jump).

Market Vector Russia ETF Trust (NYSE:RSX) closed at $21.22 on Friday, up $0.06 (+0.28%). Year-to-date, RSX has gained 44.85%, versus a 10.78% rise in the benchmark S&P 500 index during the same period.

RSX currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #1 of 77 ETFs in the Emerging Markets Equities ETFs category.

This article is brought to you courtesy of Zacks Research.

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