(Bloomberg) -- The Trump Trade that sent Russian stocks to a record high is unwinding fast.
Russia's benchmark Micex Index retreated more than any other stock gauge in the world this month as optimism deflates over prospects for an easing of sanctions under President Donald Trump. In a further sign that investor interest is starting to sour, the world's biggest exchange-traded fund that tracks Russian equities last week logged its largest outflows in nine months.
The strategy that lured funds from BlackRock Inc. to UBS Group AG has swung to losses as doubts emerge that U.S.-Russian tensions will noticeably thaw under Trump. While he comes under increasing pressure from Republican senators to keep sanctions in place, the Kremlin has toned down fawning coverage of the U.S. president by state news outlets. A slowdown in the pace of gains in Brent crude after a surge at the end of last year has made stocks of Russian energy exporters among the worst performers this month.
“There is room for a correction after the market rallied a lot last year,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague, who recommends selling Russian stocks. “A lot of the optimism over a possible relaxation of sanctions is being priced out.”
February was the worst month for Russian stocks since Dec. 2014 as the correction got underway. Investors who poured $1 billion into the VanEck Vectors Russia ETF to capture Micex gains of 11.8 percent in the final two months of the year have already lost most of that price advance.
Pavel Laberko, a London-based money manager at Union Bancaire Privee, cut his “substantial” overweight position in Russian equities because expectations for sanctions relief were overblown. The market may also have been saturated by a flurry of recent share placements, he said.
Swelling Scandals
Boris Titov, the Kremlin's ombudsman for business, this week became the latest senior Russian official to admit disappointment over prospects for a detente in relations with the U.S. The Trump administration has moved slowly on rebuilding Kremlin ties in its first weeks in office amid swelling scandals around alleged Russian contacts during the election.
The Micex Index retreated 1 percent on Tuesday to the lowest level since Nov. 16, taking a decline this month to 8.2 percent. The index earlier broke through its 200-day moving average as 34 out of 50 stocks declined.
“The market's optimistic expectations regarding the sanctions relief were exaggerated,” Laberko said. “There is disenchantment now with the U.S. president's ability to improve relations with Russia.”
--With assistance from Vladimir Kuznetsov
To contact the reporters on this story: Natasha Doff in London at ndoff@bloomberg.net, Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net.
To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Celeste Perri at cperri@bloomberg.net, Cecile Gutscher, Alex Nicholson
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