Russian market fails to rally on positive US election news

Despite the fact that Barack Obama’s victory in the US election yesterday spells out good news for Russia, the local equity market has failed to rebound at the news.

Barack Obama is more supportive of the Russia-US relationship, while Mitt Romney has made anti-Russian comments earlier this year.

During an interview with CNN in March, Romney called Russia the “number one geopolitical foe” to the US.

This week his son Matt Romney travelled to Moscow seeking Russian investors for his California-based real estate firm. during the visit, he reportedly promised the Kremlin good relations with the US should his father win the election.

But Russia’s Prime Minister Medvedev today expressed relief that Obama emerged the victor. Russia’s news sources quote him saying “”I am glad that the man who calls Russia its number one foe will not be the president of this large and influential state.”

He also told local reporters that “Obama is an understandable and predictable partner” and “has been a quite successful president.”

In August, Citigroup predicted that if Romney had won the election, the Russian market could fall by as much as 10%.

However, although the election results have removed some of the concerns about Russia’s relations with the US, there has been no rally on the Russian market in response to the news this morning.

Today the MICEX index is down 1.6%. Year to date the performance of the index is relatively disappointing at just over 1.5%.

Investors in Russia do not think the result will have a strong impact on their convictions about Russian equities.

Edward Conroy, co-manager of the HSBC GIF Russia Equity Fund, says: “We don’t think that the election result in the US will have a great deal of impact on Russia one way or the other.

“Broadly speaking, the election result means we will see a continuation of the economic and monetary policies employed for the time being, and the same political players charged with resolving domestic issues such as the challenge of resolving the US fiscal cliff without control of both houses, as well as the expectation of similar foreign policy to that seen in the first term of the Obama presidency.

“None of this leads us to change our view on any of the Russian stocks that we hold.”

A local asset management company, Russian Standard (a subsidiary of Russian Standard Bank), says the attractiveness of the BRICs for foreign investors will depend far more on the economic programme of the new government in China.

Its outlook, however, is positive. It quotes analysts saying BRIC equities may gain 15%-20% in the coming year on the back of improving market conditions.

Graham Marshall, managing director for Russia & CIS at BNY Mellon, thinks that until global conditions improve, risk appetite is unlikely to return to investors. Subsequently, fund allocators can be expected to stay away from Russia and other risky markets.

Marshall says: “It is not necessarily something that Russia needs to do to attract investors. There is simply more stability needed in the developed markets.”

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