Russian Stocks and the Russian Trading System (RTS)

Invest in Russia with Confidence

Historical Museum, St.Basil Cathedral, Red Square, Kremlin in Moscow
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Russia has become a premier emerging market and member of the so-called BRIC nations following its explosive 700% growth between 2001 and 2006. Driven by large crude oil reserves and moves towards free-market initiatives, the country became a popular destination for many international investors. The country's military intervention in Ukraine and a downturn in commodity prices have hurt its prospects moving into 2016, but investors should still keep an eye on the $1.2 trillion economy.

Stocks in Russia are traded on the Russian Trading System (RTS), which was established in 1995 as Russia's first regulated stock market. Since then, the exchange has expanded to include a full range of financial instruments ranging from cash equities to commodity futures. The RTS stock exchange markets are open from 10:00 until 11:50 Moscow time (GMT+3) and securities are traded in Russian Rubles.

In this article, we will take a closer look at Russia and how international investors can gain exposure to the premier emerging market economy.

How to Buy Russian Stocks

The easiest way to gain exposure to the Russian stock market is by purchasing U.S.-traded mutual funds, exchange-traded funds (ETFs) or American Depository Receipts (ADRs). Since these are traded on U.S. exchanges, investors can avoid the complexities and risks associated with investing directly, such as tax concerns, execution risk, and strange trading hours.

Some popular Russian ETFs and ADRs include:

  • SPDR S&P Russia ETF (NYSE: RBL)
  • Market Vector Russia ETF Trust (NYSE: RSX)
  • Gazprom OAO (ADR) (Pink Sheets: OGZPY)

For those seeking more direct access, many U.S. brokerages offer direct access to Russia's RTS, but often charge higher commissions for international trades.

Meanwhile, those looking for full-service Russian brokerages also have many options, including the country's largest brokerage, FINAM, although there are some key regulatory hurdles to pass to setup an account.

How to Analyze Russian Stocks

Investors that choose to invest in Russian ETFs or mutual funds will want to look at the country's economic health before making an investment decision. A wide array of information on this subject, including current events analysis and economic data, can be found on the World Bank's website. The International Monetary Fund (IMF) also provides valuable economic data.

Investors that choose to invest directly in Russia's RTS can analyze stocks using the English version of the RTS website. From there, investors can find a link to the public company's website where annual reports and other important disclosures can typically be found. These reports are helpful when evaluating individual stocks or bonds rather than the broad economy.

Risks Associated with Russian Stocks

Russia has become a risky emerging market ever since its 2014 military intervention in Crimea, Ukraine, while its reliance on commodity prices has made it vulnerable to a downturn. In addition, many investors are still waiting for key economic reforms to take place and make the market more transparent and easier to access for international investors.

Some key risk factors include:

  • Less Volatility and Transparency - The U.S. stock market is widely considered to be a safe-haven for investors, so most foreign markets tend to be both more volatile and less transparent in comparison, including Russia's equity market.
  • Exposure to Energy Markets - Since oil and gas makes up about half of Russia's revenues and more than 60% of its exports, most Russian ETFs hold as much as 40% of their assets in the energy sector, which translates to significant commodity risk.
  • Potential for Social Unrest - While the government has been working hard to implement social reforms, there are still many socioeconomic problems that could cause issues.

Key Takeaway Points

  • Russia has become an important emerging market with a $1.2 trillion economy and substantial natural resources.
  • With its military intervention in Ukraine and falling commodity prices in 2016-2016, international investors should exercise some caution.
  • Investors interested in the market can purchase stocks through the Russian Trading System ("RTS") or by purchasing U.S.-traded ADRs or ETFs.