Russian Market Goes Dark

The VanEck Russia ETF (RSX) and the iShares MSCI Russia Capped ETF (ERUS) fell 30% and 27%, respectively, in U.S. trading Monday. Millions of dollars have poured into the funds in the last week; some of it most likely being create-to-lend activity, in which new shares are created for short sellers to borrow and bet against.

The Bank of Russia halted trading in Moscow on Monday; this was one of several steps to protect the country’s economy from sweeping sanctions. The two ETFs primarily track Russian energy stocks. As a result, they have become useful price-discovery tools for traders navigating the geopolitical turmoil caused by Russia’s invasion of Ukraine.

RSX and ERUS have dropped nearly 60% in 2022 as geopolitical risks mount. This made them the two worst-performing non-leveraged U.S.-listed ETFs this year. Losses have accelerated in the last week due to increased sanctions; The United States prohibited transactions with Russia’s central bank, the Russian National Wealth Fund, and the Ministry of Finance.

The funds fell further on Monday after the Bank of Russia announced that stock trading in Moscow would be suspended again on Tuesday.

The drop in Russia-tracking ETFs is reminiscent of March 2020, when fixed-income funds continued to trade despite cash markets effectively freezing due to pandemic-related turmoil.

Asian Market

The massive selling rocked financial markets following Russia’s invasion of Ukraine last week came to a halt. Hence, on Tuesday, Asian stocks regained some of their composure. Moreover, surging crude prices aided the region’s oil exporters.

Following Russia’s invasion of Ukraine and Western sanctions, global stock markets have plummeted in recent days. The sanctions include cutting off some of Russia’s banks from the SWIFT financial network and limiting Moscow’s ability to deploy its $630 billion foreign reserves.

On Monday, high-level talks between Kyiv and Moscow ended with no agreement other than to continue talking. However, Asian markets stabilized on signs of no immediate escalation of sanctions.

Benchmark 10-year U.S. Treasury yields were at 1.8560 percent, gradually regaining ground lost on Monday.

The euro fell 0.2 percent to $1.1197 but remained well off the previous session’s low of $1.1121.

Russia’s rouble has stabilized after falling as much as 30% to a record 120 per dollar after Western countries and their allies imposed new sanctions on Russia. Following action by Russia’s central bank, it later clawed back some losses to 101 per dollar.

Spot gold was 0.1 percent lower at $1,906 per ounce after reaching a high of 1,973.96 last week.