Making An ETF Example of Russia

By Tom Lydon | August 28, 2008 | 6:25 PM | 1 Comment

The recent hullabaloo in Russia  is a classic example of the caution investors need to exercise when thinking about exchange traded funds (ETFs) in both frontier and emerging markets.

 While many emerging markets have much in the way of allure - vast intellectual capital, seemingly unlimited natural resources - that allure can come in tandem with plenty of risk.

Russia experienced a growth rate from 2007-2008 of 8%, thanks to those resources that include oil, mineral and timber reserves.  It's caught the attention of foreign investors who, earlier this year, came in droves to invest in Market Vectors Russia (NYSE: RSX).

Since then, though, Russia has found itself increasingly isolated over tensions with Georgia that came to a head earlier this month. Its Asian allies aren't offering any support, and France says that EU leaders are considering sanctions, according to a Reuters report. Even China, who often sides with Russia offered up some thinly veiled criticism.

 We noted earlier this year that one of Russia's obstacles to true success was its ability (or lack thereof) to make nice with other countries and play ball.  The country's hard-nosed diplomacy has the potential to leave it friendless and deter investors. Russia's actions could be costing its economy in the long run.

Investors who eye the ETFs of Russia and other politically volatile regions need to take current events into account and be aware of the risks. If you think you can handle it, just have your stop-loss in place. When a fund drops below its 200-day moving average or 8% off its recent high, we sell.

 

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