There is no mistaking the delight with which investors in Russia regard Donald Trump’s ascension to US presidency.
And after more than two years near the top of the list of countries to avoid, international equity and bond traders are placing bets Mr Trump’s victory will not just improve ties between the historic adversaries, but facilitate Russia’s rehabilitation on the global stage.
“We’re seeing that with the rouble holding up, more money is looking at Russia,” says David Nangle, managing director at Vostok Emerging Finance, a private equity firm with stakes in several Russian companies. “It’s clearly good for Russia Inc whether you are a quality company or a less quality company. Everyone benefits.”
Still, campaign trail praise for Vladimir Putin and calls for a better relationship with Russia are only the start of a long road to ending economic sanctions imposed by Europe and the US following the country’s intervention in Ukraine in 2014.
Some investors and bankers are also sceptical warmer relations would do more than exacerbate existing trends in a country already helped by this year’s return of capital to developing markets.
“You’d see growth in fixed-income trading, which is growing anyway because Russia has such high yields compared to other emerging markets,” says a senior Moscow investment banker. “But it wouldn’t do much to equities because the fundamentals don’t really change.”
Russia’s problems have been compounded by the fact that as sanctions bit, the price for crude oil — the country’s key export — fell from more than $100 per barrel to less than $50 as global supplies outweighed demand. As foreign investment ground to a halt, the economy sunk into the doldrums.
The sanctions affect a range of companies in different ways. State banks and energy companies are currently banned from raising debt of more than 30 days’ maturity from western markets. Other bans exist on companies in Russia’s defence sector, dealing with the annexed Crimean peninsula, importing dual-use technology, and doing business with people blacklisted for their role in the Ukrainian conflict or closeness to Mr Putin.
Their existence also adds obstacles to investing in non-sanctioned Russian companies for overseas investors. Viktor Szabo at Aberdeen Asset Management says internal compliance required that every position in Russia be confirmed as a non-sanctioned asset.
Andrei Kostin, chief executive of state-run VTB, Russia’s second-largest bank, released a statement hours after Mr Trump’s victory saying he expected “new possibilities for restoring constructive relations between Russia and the US, [and] improving the geopolitical situation in general. If that happens, then we could soon see an easing or even the repeal of US financial sanctions.”
Even before Mr Trump’s election win, Russia’s fortunes had been looking healthier. Within the country there are hopes that a stagnant financial services industry will be fired up with an influx of new investment. UBS has made buying Russian debt one of its top trades for 2017 while Moscow’s stock index trades at a record high.
Mr Nangle said Russia’s state banks and commodities companies would be obvious investment targets. But, he adds, “a lot has to go right before big global corporations have to take Russian risk again”.
The rouble’s fall had pushed production costs in Russia down, while sanctions prompted deleveraging that sent corporate debt levels to a five-year low, making investment more attractive.
While the country has not returned to regularly issuing Eurobonds, investors are far more relaxed about the risk of investing in Russian bonds. In January, the annual cost of insuring $10m of Russian debt against default was $400,000, according to Markit. Now it is $227,000.
International investors say they have space to include more Russian assets in their portfolios after the extended lack of issuance.
In the popular JPMorgan index of dollar-denominated emerging market bonds, Russia’s weighting is just 4.3 per cent — down from 5.75 per cent of the index in 2012.
However, there is a fair chance that markets may be getting ahead of themselves in expecting a radical new phase of Russia-US relations.
“Does Russia want better relations?” asks Mr Szabo. “Concrete signs of detente are hard to pin down and Vladimir Putin has used the idea of opposing the US as an enemy to shore up his popularity in the past.”
Alexander Morozov, chief financial officer of Sberbank, Russia’s largest bank, is more cautiously optimistic. “There’s a Russian joke where an optimist and a pessimist meet,” he told the FT.
“The optimist says, ‘It can’t get any worse,’ and the pessimist agrees with him: ‘It can’t get any worse!’