2016 might go down as the year of miracles. We just saw the Chicago Cubs win the World Series — a first since 1908. And in the world of politics, Donald Trump was all but done as the democrats pounded mercilessly away. But out of the blue, FBI Director James Comey reopened the investigation into Hillary Clinton’s email scandal. With that move, Comey guarantees himself a Donald Trump Christmas card. It’s Russian stocks, though, that will laugh all the way to the bank.
It’s no secret that the Republican presidential candidate has been vocal about everybody except Russia. He’s questioned the economic status quo of our relationships with Mexico, China and Japan. Call it the “Axis of Bad Deals” — we just don’t win with these guys anymore. But the former Soviet Union has largely escaped Trump’s fiery, no-holds-barred rhetoric. That is a major win for Russian stocks.
Just look at Wednesday’s closing numbers for the Asian markets. From Tokyo to Hong Kong to Sydney, foreign indices groaned their disapproval of the rise of Donald Trump. And Japan’s Nikkei 225 Index was on a strong run since the beginning of October until the Comey bombshell.
What’s really spooked the markets is that Trump has a chance. Polls now put the 2016 election to the tightest margin it’s ever been. Some polls even have Donald Trump in the lead — a laughable proposition a few weeks ago. With Russian stocks hitting their peak prior to Trump’s “Access Hollywood” controversy, I’m sure there are more than a few happy faces in the Kremlin.
But regardless of where you stand politically, I think we can all agree on this: there will be both “big league” changes in the markets if Donald Trump wins it all. If lightning does strike twice, look for these three Russian stocks to resume their charge.
Russian Stocks to Buy: Market Vector Russia ETF Trust (RSX)
Click to Enlarge As one of the few reputable exchange-traded funds focused on Russian stocks, you’ll want to keep a close eye on Market Vector Russia ETF Trust (NYSEARCA:RSX). Should Donald Trump become our next president, the RSX just might take off.
Since Russia’s invasion of Ukraine and the subsequent economic sanctions, there have been few volatile investments as the RSX. Depending on your timing, Russian stocks are either your best performers or your worst laggards.
So far this year, the RSX has looked promising. Year-to-date, the ETF is up about 24%. That puts our capitalist-run SPDR S&P 500 ETF Trust (NYSEARCA:SPY) — up a measly 3% — to shame. The RSX needs the Donald Trump-Mike Pence ticket, however, to reign supreme come Nov. 8. Over the past 30 days, Russian stocks have lost all their bite, down 3%.
Surely, Hillary Clinton and her aggressive tone against Russia is not doing their markets any favors. The other side of the vitriolic 2016 election has tirelessly launched accusation after accusation against the Kremlin. Clinton may go down as the most fervent anti-Russia presidential candidate this side of the Cold War. But with her campaign starting to lose momentum, that gives the RSX a viable lifeline.
Like the World Series, this election will come down to the wire, and RSX investors will be waiting anxiously.
Russian Stocks to Buy: Gazprom PAO (OGZPY)
Click to Enlarge The past few years have been extraordinarily rough for energy companies as slowing demand and ballooning supplies killed margins for everyone. But for Russian stocks, a vast sum of which are levered to the commodity markets, it’s been especially problematic.
Gazprom PAO (ADR) (OTCMKTS:OGZPY) — one of the most recognizable corporate names in Russia — is no exception. After climbing to multi-year highs in 2011, OGZPY has suffered a long-term slump.
That’s why the candidacy of Donald Trump couldn’t have come any sooner. While Russian stocks appear fine in light of allegedly crippling sanctions, they’re also not great for business. In 2014, net income for OGZPY slipped badly, and profitability margins are still challenged compared to their heyday. Also, their inventories are running steadily higher over the past six years. This could indicate a sufficient lack of demand.
That situation isn’t going to get better for OGZPY if Hillary Clinton takes office. She’s routinely mocked the “bromance” between Russia’s Vladimir Putin and Donald Trump. With her tough anti-Kremlin message, her constituents would expect her to walk the walk. Even more alarming for OGZPY and others, she seems to relish any opportunity to flex her muscle.
Worst case scenario, that accelerates us into Cold War 2.0. Best case scenario, we have a frustrating relationship with Russia. But in either case, Clinton would sink OGZPY to the ground.
Russian Stocks to Buy: Sberbank Rossii PAO – ADR (SBRCY)
Click to Enlarge Moscow-based commercial bank Sberbank Rossii PAO – ADR (OTCMKTS:SBRCY) is in a unique position. On one hand, SBRCY is one of the best-performing Russian stocks, up an eye-popping 58%. That’s enough to make anyone sober from a vodka-fueled night. On the flip side, SBRCY desperately needs Donald Trump to win the presidency if it’s to have any chance of moving forward.
Big banking institutions are facing a number of problems. The black eye from highly publicized controversies such as Wells Fargo & Co (NYSE:WFC) is a notable example. But a more structural concern is the aversion millennials generally have toward banks.
And in Russia, half the entire population stated they didn’t trust their banks when the country was hit with sanctions in 2014. It’s that lack of populace confidence which will be a risk factor for SBRCY.
But if Clinton seals the deal, I don’t see this as net favorable for SBRCY. Banking is about building trust and relationships and that’s difficult to do with ballistic missiles actively pointed at everyone. Thanks to the heated discourse in U.S. politics, no one would be surprised if a Clinton presidency took a hard line stance against Russia.
For that reason alone, SBRCY needs Donald Trump.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.