Russian Bears Awaken from Hibernation

Jacob Harper |

The last couple months have been an unmitigated financial disaster for Russia. The debacle that was the Sochi Winter Olympics, an event that was supposed to reinvigorate the Russian economy, instead made it the laughingstock of the developed world, as it became increasingly clear the country did not have the infrastructure to host a major global event and had little interest in even trying to pretend like it did.

Not one to allow such a major international embarrassment to stand alone, Russia topped that snafu mere weeks later with an ill-advised encroachment into Crimea. The strong-arm move against the Ukraine backfired, and has further damaged Russia’s global reputation to the point where the country is facing sanctions from the G8, and even a possible ouster.   

The Crimean fiasco has proven to be a catalyst, with international investors pulling money out of the country en masse. As a result, Russian bulls have been rattled. The most popular ETF associated with Russian optimists, Market Vectors Russia ETF (RSX) has spiraled out of control, losing 26.88 percent of its value in 2014.

On the flipside, investors that bet against the country and sunk their money in inverse Russian ETFs have reaped massive gains. The leveraged Direxion Daily Russia Bear 3X Shares (RUSS) , one of the more popular choices for Russian economy skeptics, has exploded in 2014. The fund notched an 11.91 percent gain on Mar 13, and has more than doubled in value since the beginning of the year.

If Russia continues down the path they have apparently chosen, their economy is in for a rough ride. International sanctions are widely expected. On Mar 13 Goldman Sachs revised down their expectations for Russian economic growth, from 3 percent to a nearly stagnant 1 percent, saying that $45 billion in international capital has already been withdrawn from the country.

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