Russian stocks will get the best of the Trump bump

Russian stocks could prove to be more effective than US stocks as a way to bet on Trump.

The US stockmarket began to reconsider its enthusiasm for Donald Trump thisweek. But stock investors needn't give up on the idea of the "Trump bump" altogether, says Anthony Hilton in the Evening Standard. They just need to switch their focus. "Russia could prove to be more effective than Wall Street as a way to bet on Trump."

Neptune Investment Management's Robin Geffen, an expert on Russia, points out that sanctions are now likely to be lifted, which bodes well for the economy and earnings. President Vladimir Putin, meanwhile, however distasteful his policies, provides a more stable and predictable political backdrop than investors would find in many other developing countries.

The gradually improving macroeconomic backdrop is another reason for optimism. In 2015, Russia fell into a recession, with the economy shrinking at an annual rate of 4%. The oil-dependent economy was knocked for six by the collapsing oil price, but now the business cycle is turning, helped by a rebound in oil prices and an unexpectedly quick fall in inflation.

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The deal with the oil cartel Opec to cut output has boosted not only the oil price but the rouble too, and the stronger currency has kept a lid on increases in the cost of living. As a result, there should be plenty of scope for interest-rate cuts in 2017. The consensus GDP growth forecast for Russia this year is 1.2%.

Russia is also the cheapest major stockmarket in the world: it has a cyclically adjusted price/earnings ratio (Cape) of just six. So while it will always be extremely risky, Russia currently looks like it might be worth a punt. One way in is via the JP Morgan Russian Securities (LSE:JRS) investment trust.

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.