Investors have piled into Russian equity and bond funds over the past week as oil prices have rallied and President-elect Donald Trump named an oil executive with close ties to Vladimir Putin as US secretary of state.
Russian stock funds recorded inflows of $451m in the week to December 14, the biggest weekly haul since the first quarter of 2011, according to EPFR. Mutual funds and exchange traded funds invested in Russian bonds counted their largest inflows since February 2015.
The stabilisation in oil has proved to be a boon to ETFs and mutual funds with Russian mandates. Assets at some of the largest funds have risen by as much as a third since late November, when Opec ministers were on the point of a deal to curb production.
Assets within the VanEck Vectors Russia ETF have swelled 33 per cent to $2.5bn since November 29, while the iShares MSCI Russia ETF has seen a 16 per cent rise in assets to $438m. The size of JPMorgan Funds’ Russian equity fund has climbed 9 per cent over the same period.
“The valuation was extremely attractive and the recovery of oil is very supportive of not just the equity market but of [Russia] politically,” said Vinay Pande, head of short-term investment opportunities at UBS Wealth Management. “When oil was sliding, people were not just concerned about equities, but about stability there.”
Crude has advanced 16 per cent since Opec agreed to a supply cut, finding additional support this week when 11 countries outside the cartel — including Russia, Mexico and Oman — followed suit with a deal to reduce production.
The election of Mr Trump and his choice of Rex Tillerson — the former ExxonMobil chief executive who negotiated a deal with President Putin to develop Russian reserves — have also upended investor views of the country. Strategists with Citi said on Thursday that they expected a “significant softening in the US stance” towards Russia and its sanctions programme, which is up for renewal in March.
“There is a potential budding friendship between our two countries [the US and Russia],” said Dave Mazza, head of ETF and mutual fund research at State Street Global Advisors. “Investors have extrapolated that we are going to have a more friendly relationship with Russia.”
. . . the recovery of oil is very supportive of not just the equity market but of [Russia] politically
The Russian Micex stock exchange has climbed 27 per cent this year, with its advance in US dollar terms just below 50 per cent, boosted by the recovery of the rouble.
The flows into Russian stock funds bolstered emerging market equity funds over the past seven days, with the commodity price-sensitive asset class absorbing $829m of fresh cash.
Emerging market bond funds, by contrast, saw their sixth consecutive week of outflows as the Federal Reserve increased interest rates for the second time since the financial crisis. Redemptions slowed to $1.2bn from $2.3bn the week before, but nonetheless reduced the sector’s inflows for the year to $24bn, EPFR data showed.
Investors betting on faster economic growth ploughed deeper into US equity and high-yield corporate bond funds, with $18.4bn and $3bn flowing into the two asset classes, respectively. US stock fund managers have counted roughly $60bn of inflows since the election, propelling benchmark equity indices to record highs.
The fresh capital has stemmed the cumulative outflow from US equity funds for the year to $27bn from $92bn at the beginning of November.
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