Russian assets buck global falls after Trump victory

Russian assets buck global falls after Trump victory
Initially both the Russian ruble and oil prices slid on worries over Donald Trump's victory.
By bne IntelliNews November 9, 2016

Russia could be the big winner from Donald Trump’s surprise victory in the US presidential race on November 8, say analysts, and Russian assets should benefit.

In first signs of this, Russian assets escaped the worst of the turmoil in global markets after the Republican candidate's victory, with stocks rallying the most since June on speculation that Trump will mend ties with Moscow and possibly remove sanctions that are hampering Russia’s economic recovery.

The Micex Index advanced 1.5% to 1,996.83 by 1:46 p.m. in Moscow, the biggest gain in the developing world, as most equity gauges suffered losses, Bloomberg reported. The ruble also erased an earlier slide as many of its peers retreated in the aftermath of the election results.

Trump is well known as sympathetic to President Vladimir Putin’s tough-man style, and he is less interested in international relations than his Democrat rival, former secretary of state Hillary Clinton. Trump focused on domestic issues in his victory speech in the early hours of November 9, particularly highlighting investment into infrastructure in what economists are already describing as a Keynesian reflationary policy to create jobs. He didn’t mention trade or foreign relations at all.

In the run-up to the historic vote on November 8, Trump adopted a conciliatory tone regarding his possible future dealings with Putin, describing him as a “strong leader”. Accompanying statements like “the people of Crimea prefer to be with Russia”, deeply alarmed the pro-Ukrainian camp in East Europe, which fears a Trump presidency could destabilise Nato and weaken containment of Russia's increasingly militant foreign policy.

The stage may be set for a rolling back of the aggressive rhetoric that has dominated Russian-US diplomacy in the last two years. Russian stocks and bonds should in theory then rally on hopes that doing business with Russia will become easier and cheaper. 

“However, while we understand that the US sanctions are primarily under the control of the president, Trump would likely face significant opposition from within the US government, the Republican Party and [Vice President Mike] Pence to any rapid policy shift,” Sberbank warned in a note, suggesting that investors should hold off on a more substantial strategic shift in positioning on Russian assets.

Initially, both the Russian ruble and oil prices did slide on worries over the news of Trump's victory on the morning of November 9, Russian media reported. The ruble fell to 64 against the dollar at the start of trading on November 9. Brent oil prices reached the lowest point in the past three months, dropping 2.24% to $45.01 per barrel as of 9am on November 9, the report said.

But over the longer term Russian assets could benefit, especially compared to other emerging and developed markets, on the hopes of a foreign policy shift, with Sberbank forecasting a fracture in the EU stance on sanctions against Russia should the US backtrack.

Indeed, Trump’s victory will have a far bigger impact on Russia’s financial markets than the political turmoil in June when Britain voted to leave the European Union, said Vladimir Evstifeyev, head of the analytical department of the Zenit bank, told RBC. 

“A less confrontational US foreign policy will unlock major opportunities for joint (Russia-US) trade and investment," Kirill Dmitriev, the head of the Russian Direct Investment Fund, said, adding that Trump’s victory would reduce geopolitical tension.

The result is likely to be a boon for Russian businesses, particularly the major Russian companies that have found themselves on the sanctions list. Shares in these companies could rally and issuing bonds on the international capital market may become easier and cheaper.

“Trump has been more dovish toward Russia in this election cycle than any other prominent US candidate for higher office,” Sberbank CIB wrote on November 9. “Hopes that he would shift US foreign policy toward a friendlier stance, possibly including an end to the sanction regime, could see sanctioned companies outperform peers,” according to the bank. Areas like metals and steel are, however, expected to suffer due to the protectionist rhetoric of Trump, Sberbank believes.

Gold prices, meanwhile, rose on the news, as it acted as the usual safe haven asset in times of uncertainty. As global gold prices gained more than 5%, the shares of Russian gold producers Polymetal and Polyus Gold gained 4.6% and 1.7% at the start of trading on November 9 in Moscow.

Other bank analysts also saw likely gains for Russian stocks. “It appears that Russia investors are focusing primarily on the perception of eased geopolitical risks, as well the likelihood that global regulators will act to help smooth volatility: the odds of a December Fed rate hike are currently 47%, down from nearly 70% last week," Gazprombank wrote on November 9.

“Russia, as a part of the global market, will not be immune to the turmoil,” Alfa Bank added. “However, as investors look for safe haven assets, good defensive name like SNGS [Surgutneftegas], POLY [Polymetal], PLZL [Polyus Gold] and to some extent GMKN [Norilsk Nickel] should be in demand.”

Over the medium term, the market weakness will provide good opportunities to buy quality name like Moscow Exchange at handsome discounts, Alfa predicts.