Russia is the most attractive major stock market in the world at the moment, as the combination of surging Russian share prices and a buoyant ruble is driving a rally and generating some of the best investment returns, the New York Times writes.
In dollar terms, Russian stocks are up more than 28 percent (and more if you factor in dividends). The American S&P 500 index, by contrast, is up more than 16 percent. There are fundamental economic reasons for the Russian rally, most notably the rebounding price of crude oil, a cornerstone of Russia’s economy.
But the strong performance also reflects investors’ growing confidence that the United States government isn’t going to take further actions that would imperil Russia’s economy, the New York Times writes.
“This has been heavily driven by perceptions of political risk,” said Jason Bush, a senior analyst at consultancy Eurasia Group. “Last year, anxiety about new U.S. sanctions on Russia was very intense.”
Last year, after the United States imposed sanctions on prominent Russian businessmen, officials and companies — a response to Russia’s interference in the 2016 presidential election, among other things — investors fled.
The country’s stock market dropped by more than 15 percent in dollar terms. Prices also fell in the bond market, making it more expensive for people and companies to borrow money. As capital exited, the ruble tumbled about 20 percent.
For months last year, as relations between Russia and the West deteriorated, investors braced for more bad news. “It’s an uninvestable country, that’s how investors were looking at it last year,” said Lale Akoner, a global market strategist at BNY Mellon Investment Management.
“These big financial-sector sanctions that people were worried about — that never materialized,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics.
That has left investors to dwell on the fundamentals: a Russian market where stocks appeared dirt cheap after last year’s sell-off, especially in light of the more than 45 percent rise in global oil prices earlier this year. That rally helped shore up the value of the ruble and stopped the slide in Russia’s stock market, most of whose value is in energy companies.
“If oil is performing well, Russia is performing well,” said David Hauner, a markets strategist at Bank of America Merrill Lynch.
Across the board, analysts are lifting their expectations for Russian companies’ profits this year, and some of those companies churn out rich dividends to shareholders. (The dividend yield of the MSCI Russia index is three times as high as the S&P 500 index.)
