Investors warm to Russia as bond fund inflows hit record

Investors warm to Russia as bond fund inflows hit record

Investors have warmed to Russian assets, welcoming the country in from the cold. Russian bond funds counted record inflows in the week to February 1 as higher crude prices and improving relations with the US prompted an investor rotation back into the country, Financial Times wrote.

Emerging markets more broadly have found renewed investor appetite as the dollar has fallen to an 11-week low. More than $1bn flowed into EM fixed income and equity portfolios in the past week, EPFR data showed.

Investors added roughly $140m to Russian bond funds, lifting the asset class’s haul since the US election to nearly $700m, while equity funds stretched their streak of additions to 12 consecutive weeks, according to EPFR.

The inflows have propelled Russian equity markets higher, with the MSCI Russia index up 19 per cent since Donald Trump was elected president, and sent yields on the country’s debt lower. Russian dollar-denominated credit has returned more than 12 per cent over the past year, including a 1 per cent gain so far this year.

Investors have pinned their bullish sentiment on a higher oil price, which is expected to buoy economic growth and cut the Russian deficit, and a softer US policy stance.

“US-Russia relations appear likely to improve,” said Win Thin, a strategist with Brown Brothers Harriman. “With inflation likely to continue falling and the central bank likely to cut rates several times this year, we think Russian bonds will start to outperform more.”

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