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As Russian markets darken, US ETFs take lower margin of loss

(Bloomberg) — With Russia’s stock market closing in, US exchange-traded funds are indicating the scale of the path facing the country’s equity market.

The VanEck Russia ETF (ticker RSX) and the iShares MSCI Russia Capped ETF (ERUS) fell 26% and 20%, respectively, in US trading early Monday. Millions have poured into the fund over the past week, some of which was likely create-to-lend activity in which new shares are created for short sellers to borrow and place bets on.

The Bank of Russia halted business in Moscow on Monday, one of several measures taken to shield the country’s economy from sweeping sanctions. It has transformed two ETFs, which primarily track Russian energy stocks, into useful price-finding tools for traders seeking to navigate the geopolitical turmoil caused by Russia’s invasion of Ukraine.

“ETFs have proven themselves time and time again, especially around geopolitical events, when liquidity is hard to access,” said Bloomberg Intelligence ETF analyst Athanasios Sorophagis, which predicted moves in Russia’s markets last week. Had it. “ETFs are supposed to be index trackers, but when that process is broken down, they play the role of price-finding vehicles — and it’s impressive how accurate they are.”

Russian shares fall in London as Moscow Exchange closes

According to data compiled by Bloomberg, the RSX and ERUS are down more than 40% in 2022 as geopolitical risks build, ranking them the two worst-performing non-leveraged US-listed ETFs so far this year. Ranking is given. The deficit has accelerated over the past week due to mounting sanctions, with the US banning transactions with Russia’s central bank, the Russian National Wealth Fund and the finance ministry.

The decline for the Russia-tracking ETF is reminiscent of March 2020, when fixed-income funds continued to trade, even as the cash market effectively froze amid the pandemic-fueled turmoil.

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