2016 has seen a remarkable turnaround for the Russian stock market. Russia's RTS index (denominated in USD) was up 52%, while the Micex (denominated in Rubles) was up by an impressive 27%.
It was a turbulent year for the oil market. After all the price of oil went sub US$ 30 in the first quarter, and for much of 2016 fluctuated between US $ 40-50. Yes, natural resources (including oil) have staged a sharp recovery after Trump emerged as the President elect, but the Russian stock market has been up sharply well before the US elections.
Perhaps the explanation is that the Russian stock market had been badly beaten down prior to 2016, so investors saw an attractive risk-reward proposition and piled back into the Russian market. The real reason is probably the Putin's aggressive posture on the world stage. With little to loose, Putin decided that that an activist foreign policy was necessary to restore the "respect" that was due Russia. For example, as opposed to an ambiguous policy on the part of the US, Putin decided that Russia would support Syria with all but combat troops. Syria's brutal campaign has been possible because of Russian air and artillery support, as well as Russia's diplomatic cover. Following on the heels of capturing Crimea and effectively controlling Eastern Ukraine, it is clear that Putin is willing to use hard power. More interestingly, Putin has demonstrated a great deal of ingenuity in using power and influence which has plausible deniability - cyber attacks (Ukraine and the US) and militia (in Eastern Ukraine).
So why did investors reward Putin's brinkmanship with an influx of investment in 2016?? The answer is simple. Russian money invested (primarily) in Euros and also in US$ has been quietly making its way back home. This is a defensive move. Why should Russians (oligarchs and otherwise) risk having their investments frozen as a result of new sanctions being imposed by the West!
The other explanation is the expectation that the Trump regime would attempt another "reset" with Russia and may even roll back some of the sanctions in exchange for Russian "good behavior" in the Baltics and the Ukraine. This only explains the sharp uptick in Russian stocks after the US elections.
Russia's cyber intervention in the US elections appears to have paid off in that Trump was able to score an upset victory. However, Obama's recent sanctions raises the ante for Putin. It makes it extremely difficult for Trump to attempt a reset and/or ease sanctions on Russia. In fact, there is a simple reason why Putin did not retaliate to the most recent sanctions. This would have put both Trump and Putin into corners with little room for maneuver.
With Trump unlikely to apply additional sanctions, but unable to roll them back, Russia is back in a difficult position. Yes, oil and natural resources may well see an uptick in 2017, but that is predicated on a strengthening US economy pulling the rest of the world along.
So capital flight is likely to resume from Russia in 2017.
It was a turbulent year for the oil market. After all the price of oil went sub US$ 30 in the first quarter, and for much of 2016 fluctuated between US $ 40-50. Yes, natural resources (including oil) have staged a sharp recovery after Trump emerged as the President elect, but the Russian stock market has been up sharply well before the US elections.
Perhaps the explanation is that the Russian stock market had been badly beaten down prior to 2016, so investors saw an attractive risk-reward proposition and piled back into the Russian market. The real reason is probably the Putin's aggressive posture on the world stage. With little to loose, Putin decided that that an activist foreign policy was necessary to restore the "respect" that was due Russia. For example, as opposed to an ambiguous policy on the part of the US, Putin decided that Russia would support Syria with all but combat troops. Syria's brutal campaign has been possible because of Russian air and artillery support, as well as Russia's diplomatic cover. Following on the heels of capturing Crimea and effectively controlling Eastern Ukraine, it is clear that Putin is willing to use hard power. More interestingly, Putin has demonstrated a great deal of ingenuity in using power and influence which has plausible deniability - cyber attacks (Ukraine and the US) and militia (in Eastern Ukraine).
So why did investors reward Putin's brinkmanship with an influx of investment in 2016?? The answer is simple. Russian money invested (primarily) in Euros and also in US$ has been quietly making its way back home. This is a defensive move. Why should Russians (oligarchs and otherwise) risk having their investments frozen as a result of new sanctions being imposed by the West!
The other explanation is the expectation that the Trump regime would attempt another "reset" with Russia and may even roll back some of the sanctions in exchange for Russian "good behavior" in the Baltics and the Ukraine. This only explains the sharp uptick in Russian stocks after the US elections.
Russia's cyber intervention in the US elections appears to have paid off in that Trump was able to score an upset victory. However, Obama's recent sanctions raises the ante for Putin. It makes it extremely difficult for Trump to attempt a reset and/or ease sanctions on Russia. In fact, there is a simple reason why Putin did not retaliate to the most recent sanctions. This would have put both Trump and Putin into corners with little room for maneuver.
With Trump unlikely to apply additional sanctions, but unable to roll them back, Russia is back in a difficult position. Yes, oil and natural resources may well see an uptick in 2017, but that is predicated on a strengthening US economy pulling the rest of the world along.
So capital flight is likely to resume from Russia in 2017.
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