After months of intense negotiation, Ukraine and Russia have finally decided to make a pact at least to resolve the ongoing natural-gas battle. A deal has finally been signed by Russian Energy Minister, Alexander Novak, his Ukrainian counterpart, Yuri Prodan and the European Union (EU) to resume natural gas supplies halted by Russia in June.
However, Ukraine will first have to clear all its outstanding dues and also make upfront payments for future gas deliveries for the deal to be effective. This will require Ukraine to pay $3.1 billion to settle some of its previous debts, as well as make an additional payment of $1.5 billion for deliveries of gas for November and December. This is believed to be funded by the International Monetary Fund (IMF).
The deal is quite significant given the fact that the EU relies on Russia for more than a third of its gas imports, the majority of which is piped through Ukraine. The deal brings relief to thousands of Europeans who were earlier threatened to go without enough heating this winter. Some believe that the deal might mark the beginning of new relations between EU, Russia and Ukraine.
The energy deal, however, failed to provide the much needed boost, with most of the Russian ETFs still trading either flat or in the red following the deal’s closure on Oct 30. Most of the ETFs in the space including Market Vectors Russia ETF (NYSEARCA:RSX), iShares MSCI Russia Capped ETF (NYSEARCA:ERUS) and Market Vectors Russia Small-Cap ETF (NYSEARCA:RSXJ) have shed more than 1% this week (read: Russia ETFs Crumble on New Sanctions, What Lies Ahead?).
Also, these products have been the worst performers in the international arena this year, having lost in excess of 20% in the past one year due to the ongoing conflict. The graph below clearly highlights the downtrend in the above three Russian products for the past one year.
Is There Any Hope?
Though the recent deal failed to ignite the Russian ETFs, these products have willy-nilly seen huge inflows in the past two months, as per etf.com. Investors have poured more than $630 million into RSX in the past two months lured by cheap valuations in the emerging market space.