ERUS - Russia

Up 100% in a day on the Trump victory. How about that post-Trump move? Financials the way to play it?

It depends on your opinion on whether the “maybe” scenarios will become reality or not. Financials have room to further outperform other sectors if Trump’s infrastructure plan becomes more tangible, as interest rates will rise as a result. I would also keep track of the pro business sentiment that is forming in Europe, as is evident in the French elections or Brexit discussions. If European capital constraints are relaxed or UK institutions are able to keep their passporting, US institutions will also benefit.

EM underperformance might be a bit overdone. There isn’t much reason (in my opinion) for emerging currencies to be down 10% over isolationist threats that probably won’t materialize. What are these “tougher” terms that Trump keeps talking about but never describes specifically? Not that I have any real money on this or anything.

If you believe in America First, then you should buy US small cap stocks, which have already outperformed large cap stocks after the election. Small cap stocks derive less revenue from overseas and in fact, tend to be importers of foreign goods. So, they will benefit from a strong USD, high interest rate environment.

On the other hand, if you believe that speculation has gotten ahead of reality, you would do the opposite of what I described above and instead, overweight consumer staples, which have underperformed the broader market. Investors seem to have rotated out of this sector and into financials, infrastructure, and pharmaceuticals. Perhaps they will rotate back into staples once the market settles.

So, I guess it really depends on what you believe will happen.

I was speaking about Russian financials specifically. Since 2014 US & EU sanctions have been applied to numerous Russian financial companies. Trump could just allow the executive order to expire and poof, no more sanctions.

But, you are correct. Trump is very unpredictable, so it would be unwise to put big bucks in Russian financials, I think (unless it works out, of course). I may dip a toe and see how the water is.

Thanks for clarifying. Anyway, under your scenario, the whole Russian stock market will appreciate, along with Russian currency. As a US investor, you will have access to more liquid instruments related to the broader Russian market as well. Plus, there can’t be *that* many Russian banks over which you could diversify your investment, thus exposing you to other sorts of event risk.

I’m pretty sure this was a reverse split. none of the underlying holdings have rallied massively and the ruble hasn’t moved much vs the USD.

…maybe you knew that already and the OP was just sarcasm

Of course it’s a reverse split. Sberbank hasn’t moved (or Gazprom). The Russian market rallied 100% and nobody noticed. Congrats, I’m surprised nobody started talking about it being “priced in.” Also, why November 16th if the election results were known on the 9th.