Can't buy Russia ETF?

[copyright1997reloaded]

I am curious why the etfs are being traded for so much more than NAV.
Anyone have a theory?

My thinking is moex is closed because Putin and his oligarchs want to figure out how to buy these company’s back for either oligarchs or the state for Pennies on the ruble so to speak.

Because the NAV is meaningless as the underlying securities don't have a market. For a few days, only sell orders were allowed.

I haven't tried to play this game of roulette, but the underlying assets do have real oil and gas and some intrinsic value. Whether that means the equities have any value is another question. There are tons of ways that the stockholders (especially foreigners outside of Russia) get wiped out. I am bothered that government entities can just declare that they can't be traded. But the mentality seems to be that wiping out the value of American ownership (via RSX etc.) is a "good thing". Sort of like the mentality of pouring out Russian Vodka (that you already paid for) and for which ironically was made in Poland by someone who is an enemy of Putin.

In no way to I like or support what is going on in Ukraine. But I am fearful of the unintended consequences of what is going on. If I were a leader of a country, I would be looking VERY carefully at a) having alternatives to the $ for reserve currency b) allowing American companies to control technology infrastructure or other aspects of the country. c)Make sure my country's assets can't be seized by other countries.

 

[NW-Bound]

Because the NAV is meaningless as the underlying securities don't have a market. For a few days, only sell orders were allowed.

I haven't tried to play this game of roulette, but the underlying assets do have real oil and gas and some intrinsic value. Whether that means the equities have any value is another question. There are tons of ways that the stockholders (especially foreigners outside of Russia) get wiped out...

+1

Can they find a way to declare old shares worthless, and issue new shares that own all the existing assets? If you don't like it, you can go sue them.

 

[RobLJ]

I suspect the OP is ignoring that with nuclear sanctions (particularly the Central Bank asset freezes), Russia is likely default in a month or two and there will not be much of an out for Russian companies on the Western exchanges, as the ruble even further collapses (after Russia uses what Central reserves it can use. Sequestering foreign currency held privately now is shoring up the ruble). I guess if the war is over in a week or two, the ruble might go back up from here, best case.

China did sign an agreement for oil recently, so there is that.

But you do you. Russian assets are now "cheap" and likely to get even cheaper, if they don't go bankrupt. Big if. Sherbank is now down to about a penny/share; my suspicion is that the banks will collapse and pull most of the rest of the economy down with them. If they survive, maybe GazProm or the other energy companies might survive, but my suspicion is Western investors will be wiped out. You are looking at a bleaker version of what might have happened here in '08 if the Feds/Congress had not interfered; I do not think the Russian Bank nor government has this ability, given the currency and economy, but miracles happen. Putin could take his marbles and go home to lift sanctions, particularly if the offensive continues to bog down.

Just my pennies worth, which is worth about what a Sherbank share is worth. Personally, I would wait to see whether the economy survives the next month or two. If shares double, then it might be worth throwing a small bit into the fire.

 

[RobLJ]

I left out: I'm not sure how Western ETFs can trade when the Russian market is closed and remaining closed. If they take Ukraine, I suppose they will open their markets, but the closure tells you most of what you need to know. It is not a sign of internal confidence, for sure.

 

[Markola]

I didn’t realize that there is a category of countries below “emerging market status.”

“Index giant S&P Dow Jones Indices said Friday it is removing all stocks listed and/or domiciled in Russia from its benchmarks in light of the country’s invasion of Ukraine, further isolating the nation from the global economy.”

https://www.cnbc.com/2022/03/04/sp-...ipping-country-of-emerging-market-status.html

 

[NW-Bound]

I didn’t realize that there is a category of countries below “emerging market status.”

“Index giant S&P Dow Jones Indices said Friday it is removing all stocks listed and/or domiciled in Russia from its benchmarks in light of the country’s invasion of Ukraine, further isolating the nation from the global economy.”

https://www.cnbc.com/2022/03/04/sp-...ipping-country-of-emerging-market-status.html

I have seen Russian market called "uninvestible".

About a country stock market being "non-emerging", I see a similarity with some of the seeds that I plant. I am still waiting for the beans I planted almost 2 weeks ago to emerge.

Worse, some seedlings emerged, then succumbed to fungus or blight. That's the state of Russian stocks.

 

[Markola]

^^^^ Time to reprint those 1970s bumper stickers, “Eat More Beans. America Needs the Gas.”

 

[MichaelB]

The premium / discount ratio for ERUS has now increased to 13,175.14%, according to the fund web page. https://www.ishares.com/us/products/239677/ishares-msci-russia-capped-etf

Safe to assume any ETF that had Russian holding is going to have an unusually high premium / discount ratio for the next couple of years, and this will distort all the analytics.

 

[copyright1997reloaded]

The premium / discount ratio for ERUS has now increased to 13,175.14%, according to the fund web page. https://www.ishares.com/us/products/239677/ishares-msci-russia-capped-etf

Safe to assume any ETF that had Russian holding is going to have an unusually high premium / discount ratio for the next couple of years, and this will distort all the analytics.

Looking at the details, it indicates that the total fund NAV is under $1 million US$. ($834K). The fund has about 920K in Cash (in us $). Most/all of the Russian assets are marked at 0. As I stated before, the NAV calculation is meaningless. I would buy this hand over foot if I could purchase at any where near NAV.

 

[indiajust]

sanctions on banking system block transactions with ruble/dollar exchange. I got in under the wire, buying some extremely cheap shares on a gamble that this will all blow over in a year or so. Next day after trade closed i saw the sanctions posted inside schwab.

 

[Mr._Graybeard]

Financial Times reports that PIMCO has a big stake in Russian sovereign debt.

https://www.ft.com/content/8d5bfe45-ebcb-4f75-8f4f-e0435ca87c1d?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev

 

[copyright1997reloaded]

Financial Times reports that PIMCO has a big stake in Russian sovereign debt.

https://www.ft.com/content/8d5bfe45-ebcb-4f75-8f4f-e0435ca87c1d?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev

"It usually takes a while for the bodies to float to the surface".

(one of my investment philosophies)

ETA: The law of unintended consequences. We have had severe market disruptions.

 

[RetiredAt55.5]

sanctions on banking system block transactions with ruble/dollar exchange. I got in under the wire, buying some extremely cheap shares on a gamble that this will all blow over in a year or so. Next day after trade closed i saw the sanctions posted inside schwab.

My dear brother (RIP) bought a bunch of GM shares in 2008 when the price went below $1, thinking the government wouldn't let GM fail so the stock would recover and he'd make a decent profit.

Well, he was right the government wouldn't let GM fail, but new shares were issued after the bankrupcy and the old shares became near worthless (or maybe worth $0.50 per share a couple of years later).

That was a cautionary tale for me.

 

[Markola]

Russia intends to seize assets abandoned by western companies.

https://www.theguardian.com/world/2...e-assets-of-western-companies-exiting-country

 

[copyright1997reloaded]

My dear brother (RIP) bought a bunch of GM shares in 2008 when the price went below $1, thinking the government wouldn't let GM fail so the stock would recover and he'd make a decent profit.

Well, he was right the government wouldn't let GM fail, but new shares were issued after the bankrupcy and the old shares became near worthless (or maybe worth $0.50 per share a couple of years later).

That was a cautionary tale for me.

Those were interesting times. I had a few people ask me about buying GM, Ford, Chrysler. First, I suggested that they only buy the strongest of the three (F). Secondly, I suggested that they only buy debt, the idea being that if they did go bankrupt, the equity would be wiped out.

Was that the suggestion to get the most levered outcome? No. But preservation of capital is (in my mind) most important.

I bought a Ford preferred selling for 20 cents on the dollar. It had a 7% coupon, so at the discount was yielding 35%.

Ford didn't go bankrupt, and paid me my 35% annually for a few years. Then they called the notes at par. So about 100% return on holding plus 5x on the called notes. Was that as good as buying the common? I don't know, I never figured it out...but I was happy with the result.

p.s. one of the people asking me bought GM common, and his investment was wiped out.

 

[copyright1997reloaded]

Russia intends to seize assets abandoned by western companies.

https://www.theguardian.com/world/2...e-assets-of-western-companies-exiting-country

Yes.

The long term ramifications of the last few months/couple years is that we will see lower growth rates due to a reduction in global trade. (You know, Econ 101 Comparative Advantage stuff. David Ricardo would not be happy with the way things are going.)

This is also what I mean about unintended consequences. I can just imagine some of the conversations around the world within countries who are asking themselves if they want to be reliant on US companies, US financial systems, etc. You know, things that can be "cut off".

 

[Markola]

What choice do they have? Even Switzerland froze Russia’s assets.

 

[aja8888]

I'd do the same thing if I was Putin. Heck, this practice is common stuff. Mexico nationalized the U.S. oil interests in the 1940s and Chilie nationalized U.S. copper mines around 1970. And we weren't even at war with either country!

 

[Mr._Graybeard]

Enjoy a McKgb at the Putin McD's.

 

[MichaelB]

History shows global businesses may not have a choice. If they continue operating but are unable to access foreign exchange markets they are stuck, unable to repatriate profits. This has happened many times around the world and more often than not, ends badly for business. Hostile foreign governments impose punitive measures against foreign subsidiaries and their personnel, especially execs. Nationalization / expropriation of assets is not the worse case scenario for a global business.

The hit to global trade should be minimal. Commodity exports do not stop, they just find different routes to market and global price increases a bit. Likewise global growth.

 

[Markola]

It will be “interesting” to watch all this play out, from our relatively comfortable Western vantage points, though I personally would not want to have adult money in any Russian ETF.

I joined Twitter recently and it’s a remarkable thing to read and interact with Russian and Ukrainian posters. One young Russian IT worker said today that her paycheck is now worth 70% less. Rather than share outrage at their government, several other Russians chimed in to say they were glad to see IT workers finally have something to complain about.

I realized I cannot assume to understand their worldview, or their communication constraints within such censored society. Under this economic blockade, the French would probably be out with pitchforks, barricades and guillotines. The Americans would probably be looking to cut a deal. The Russians, overall, seem resigned to suffer and endure. Many comments have the tone, “Putin is a brute, so it seems our fate is to end up like North Korea.”