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A Russian Reminder

Russia's troubles highlight emerging-markets bond fund risk.

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The holidays are usually a period of relative quiet for investors, but the opening weeks of December were anything but calm. One of the biggest stories was the dramatic drop in the value of Russian debt and the ruble, which took its toll on broad emerging-markets bond indexes and a number of funds dedicated to the space. We take a look at what drove Russian debt prices to plummet and examine what that means for some of the largest emerging-markets bond funds and, more broadly, what lessons investors can take away from the recent turbulence.

A Perfect Storm
Years of weak growth in Russia's oil-dominated economy left it particularly vulnerable to sanctions announced earlier this year. But the key destabilizing event in 2014 was the rapid fall of the price of oil, which had a negative impact on Russia's fiscal budget and trade balance, as well as the value of the ruble.

Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.