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TheStreet Open House

ETFs For Capitalist Russia

Stocks in this article: RBLRSXCSCO

NEW YORK ( TheStreet) -- During Russian President Dmitry Medvedev 's visit to the U.S. last week, among other objectives, he presented the concept of Russia as a modernizing country worthy of increased foreign investment. Investors looking to tap the country's newfound emphasis on economic reform can gain exposure with Market Vectors Russia (RSX).

A little over a week ago, Medvedev announced that Russia's capital gains tax on direct investment would be abolished starting in 2011. The number of industries that are off-limits to foreigners will also be reduced by more than 80% as the country looks to attract foreign investors.

This policy change came days before the president visited the U.S., including a stop in Silicon Valley, where he promoted a Russian tech initiative. The country wants to develop its own "Silicon Valley" and Medvedev secured a $1 billion pledge from Cisco (CSCO) over the next decade.

Some of the money is going toward building the new innovation city near Moscow. The city is expected to have its own regulations and tax code, in an apparent attempt to create a location where the Russian economy can turn a new page and get a fresh start.

It is acknowledged though that there are significant barriers to attracting this type of innovative investment in Russia, chief among them being corruption and bureaucratic obstacles.

Also, while Medvedev is promoting the new innovative and capitalist Russia, old frictions resurfaced with yesterday's arrest of 10 people accused of being involved in a long-term espionage ring for Russia.

While the goal of the agents was mainly political, one of the targets was a wealthy financier and information about the "global gold market" was collected. Russia has stepped up its overt competition for capital, but the covert battle for economic intelligence continues.

For investors that have confidence in the new face of Russia, a country looking to join the WTO with a modernizing and internationally competitive economy, there is really only one viable ETF option: Market Vectors Russia ETF (RSX).

Another Russia focused equity ETF does exist in SPDR S&P Russia (RBL), but RBL's volume is so low that investors could face concerns over the liquidity of the fund.

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