Country ETFs to Top/Flop on Saudi Attack

Sanghamitra Saha

Looks like the oil price rout will take a break. After an attack on Saudi Arabia’s largest oilfields in Hijra Khurais and the world’s biggest crude processing facility at Abqaiq on Sep 14, supply disruption sent oil prices higher.

“Brent prices grew more than 19% on ICE Futures Europe to $71.95 a barrel, its biggest gain in percentage terms since 1991. Trading in WTI was frozen for a few minutes because of a so-called circuit breaker, which is triggered by a gain of more than 7%. When they finally opened, futures jumped as much as 15.5% to $63.34, the most since 2008,” per Bloomberg.

Analysts at S&P Global Platts estimated that Brent oil will see a $5 or $10 price surge from its current levels, which could push it to test the $70 range, as quoted on MarketWatch. As we know, ETFs offer a great opportunity when it comes to playing a particular country.

In light of this, we highlight a few country ETFs that could shoot up in the days ahead. We also mention the country ETFs that could suffer in the current scenario.

Gainers

VanEck Vectors Russia ETF (RSX)

Oil is seemingly the main commodity of Russia. About half of Russia’s exports in terms of value come from oil and natural gas as the country has the third-largest oil reserve in the world and the biggestnatural gas reserve. This makes it clear why Russia’s economy is highly dependent on the oil price movement.

RSX is the most popular and liquid option in the space, with an asset base of $1.18 billion and average trading volume of more than 6 million shares a day. The energy sector accounts for about 40% of RSX, which charges 65 basis points as expenses (read: ETFs to Buy/Avoid on Higher Oil Prices).

Global X MSCI Norway ETF (NORW)

Norway is among the top 10 nations in terms of oil exports. With its comparatively low population, oil forms a key part of the country’s GDP. Per the U.S. Energy Information Administration (EIA), Norway is the biggest oil driller in Europe.  

The most popular way to play the country is with NORW. The product tracks the MSCI Norway IMI 25/50 Index, charging investors 50 basis points a year in fees.

The ETF is concentrated on energy stocks as these make up for nearly 26% of the portfolio. Thanks to a surge in oil prices, NORW may see solid trading ahead (read: US Tightens Sanctions on Iran: Country ETFs to Gain/Suffer).

iShares MSCI Canada ETF (EWC)

 Canada is also among the world’s top 10 oil producers. The oil, gas and mining sector makes up for about over a quarter of Canada’s economy. The best way to invest in Canada is through the iShares MSCI Canada ETF. The fund holds just under 100 stocks in its basket. Energy makes up a huge chunk of assets, accounting for about one-fifth of the total.

Global X MSCI Colombia ETF GXG

Oil exports in Colombia account for about 20% of government revenues. As a result, a spike in oil prices will definitely ease some revenue pressure. Though the Colombia ETF GXG is heavy on Financials (47.13%), the energy sector has about 16.93% exposure. The fund charges about 61 bps in fees overall.

Losers

iShares India 50 ETF (INDY)

India is almost entirely dependent on imports for its oil needs. The country is likely to witness a rise in oil import bills, thanks to an uptick in global crude oil prices. Higher oil prices might hurt the fund INDY in the near term.

The Indian rupee fell sharply against the U.S. dollar on Sep 16 as oil prices jumped after drone attacks on Saudi Arabia's oil infrastructure. “Every dollar increase in the price of oil raises the import bill” by around INR10,700 crores (or by $1608 million) annually, per an analyst.

Also, “Saudi Arabia is the second largest supplier of crude to India after UAE,” per the source. The fund tracks the Nifty 50 Index, which looks to track the 50 largest publicly traded Indian companies.

iShares MSCI Japan ETF (EWJ)

The country has been among the top 10 oil importers in 2018. So, the country may face some trouble owing to the jump in crude price, though a strengthening yen could mitigate some of the negative impacts.

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