Traders looking to monetize the financial fallout from Russia’s invasion of Ukraine have racked up millions of dollars of wins over the past week by short-selling Russian exchange-traded funds.
While Russia’s central bank last week made an order preventing the short-selling of individual Russian stocks, it is still possible to short ETFs, which are baskets that aggregate the stocks of Russian companies. Short sellers borrow shares in ETFs that they think are overvalued and immediately sell them. They then aim to repurchase the shares for a lower price later before they return the shares, making a profit by pocketing the difference if the securities decline in value.
Traders betting against three major Russian ETFs have made roughly $120 million on their bet over the past week, according to S3 Partners LLC, a financial data-analytics firm.
The largest Russian ETF, the VanEck Russia, also known as the RSX, has declined by nearly 45% over the past five days, while iShares MSCI Russia ETF and Direxion Daily Russia ETF have dropped by 45% and 41%, respectively, over the same period.
While short sellers have been making money, other traders have been aiming to buy up Russian ETFs while the prices are cheap, and the RSX has received an inflow of $382 million of new investments over the past week.
There is a dichotomy of trading strategies, where some investors see Russian stocks as historically cheap as a longer-term trade, while other investors bet against these stocks short-term to take advantage of recent market weakness and volatility, said Ihor Dusaniwsky, managing director at S3 Partners.
