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Will Russian ETFs Really Benefit From A Trump Presidency?

Friday, November 18, 2016 7:09
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From Zacks: By now, we all have taken a note of multi-faceted impact of Donald Trump’s win in the U.S. presidential election. While some asset classes and world markets emerged winners, others took the opposite route. Among the winning investment areas, Russia looks to be benefiting under the Trump presidency. In fact, Russia has been among the very few emerging markets (EM) that got a boost post U.S. election.

Since, the greenback rallied on higher inflationary outlook, most emerging marketsfell prey to it. As a result, WisdomTree Brazilian Real Strategy Fund (BZFFree Report) and WisdomTree Indian Rupee Strategy Fund (ICNFree Report) lost in the last five trading sessions (as of November 15, 2016), while Russian currency ruble was steadier against the U.S. dollar (read: Foreign ETFs to Win or Lose on Trump Victory).

This is because Russia is likely to celebrate Trump’s victory as the U.S. president indicated his affinity toward Putin. Notably, the relationship between the U.S. and Russia was stressed when the latter annexed Crimea from Ukraine in early 2014. But now the ice may start melting.

In fact, there is information that the two leaders have already conversed on issues like “shared threats, strategic economic issues and the historical US-Russia relationship.” Both presidents put stress on fighting against terrorism together.

In the presidential debate, there was even an accusation that the Russian government was resorting to hacks and sending content to WikiLeaks to help Trump to get to the White House (read: Third Presidential Debate Puts These ETFs in Focus).

Trump views that several American cronies are benefiting from partnerships like trans-Atlantic efforts, be it on the security front or trade. In fact, The North Atlantic Treaty Organization (NATO) is likely to be in trouble when Trump takes over. This should cheer Russia as the alliance is preparing to venture into Eastern Europewith more forces trying to strengthen defenses against it.

So, Russia ETFs like VanEck Vectors Russia ETF (RSXFree Report) and VanEck Vectors Russia Small-Cap ETF ((RSXJFree Report) ) may be poised for gains. If this is not enough, the World Bank expects the Russian economy to grow 1.5% in 2017 and 1.7% in 2018, though the economy will likely shrink 0.6% in 2016. The World Bank’s projection topped the Russian central bank’s estimate of less than 1% growth in 2017, as per Reuters.

However, investors should note that Trump may act as a tailwind to Russia investing, but oil holds the real trump card. Russia’s is an energy-rich economy. So, its fate is tied to the oil price movement. So, all eyes will be on the OPEC meet wherein an output curb deal can well be cut this month. Notably, the World Bank’s projections were based on the assumption of average oil price at $55 per barrel in 2017 (read: 3 Country ETFs Soaring on Hopes of Oil Output Curb).

This article is brought to you courtesy of Zacks Research.

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