Nomura analysts described Russia as the only winner from the trump

Emerging markets are in the red

Economic strategy elected President of the USA of Donald trump, the essence of which is reduced to the formula “America first” carries downside risks for emerging markets. This is due to key elements of the announced policy of trump: trade protectionism, the tightening of immigration regulations, accelerated rate hike by the fed, a stronger dollar, the revaluation of the foreign policy priorities of America. That’s the conclusion came analysts of the international investment Bank Nomura, the Bank review on the impact of “trumpalaike” on emerging markets (have).

Measures to stimulate the U.S. economy can provide support to developing countries, but their effect will occur before the end of 2017 — beginning of 2018, analysts say. Meanwhile, they will be adversely affected by two factors — the accelerated increase in the base rate of the fed and strengthening the dollar. This increases the vulnerability of emerging markets, which since 2008 have accumulated a considerable amount of dollar debt, and threatens them with capital flight and defaults on credit obligations. Focused on trade markets and complex geopolitical situation make the country much more vulnerable to the course of the new administration than developed markets, according to Nomura. The new policies will impact differently on each country, experts of the Bank, the result of the difference in their ability to withstand external shocks, and opportunities for protective measures.

Russia in the black

Would suffer the most from the new policy of the United States Turkey, experts believe. Hard to have also the economies of Latin America, the recovery of which is already slowing. Growth in Asia is only slightly weakened, as the region possesses sufficient financial capabilities and uses them. Stronger growth will show only one emerging market — Russia. In the baseline scenario, Nomura, suggesting moderate fiscal stimulus of the us economy when trump and the absence of radical protectionist measures, Russia’s GDP growth in 2017 will amount to 1.1% and in risk scenarios (tougher fed policy, a strengthening of the dollar to $0.95 per €1, greater protectionism), the Russian economy will accelerate to 1.3%.

Nomura expects a further reduction of inflation in Russia (although more slowly), which by the end of the year should be 4.5 percent under the baseline scenario. These conditions will allow the Central Bank to lower the interest rate by 100 b.p.; the exchange rate to the end of the year should amount to 60 rubles per dollar, expect the experts. Risk scenario the Bank suggests a relatively moderate decline in oil prices, and favorable conditions for Russia due to the weakening of the sanctions. This will reduce the cost of funding for Russian banks and businesses and help economic growth.

Improving the balance of payments will support the ruble, but the conservative Central Bank will curb excessive strengthening of the national currency due to purchases of dollars and lower rates, says Nomura. The Central Bank will allow the ruble to strengthen as long as it does not threaten key budget parameters, notes Nomura. The regulator prefers to keep a tight monetary policy and keep a high interest rate. By the end of the year it will be 9% at baseline and 8.5% in the risky scenario.

Support the ruble may also have a policy of OPEC concerning oil prices, the Russian economy return to growth and possible improvement in us-Russian relations. Any signs that the White house lifted sanctions, will contribute to a significant strengthening of the Russian currency, experts of the Bank. The Wall Street Journal wrote about the good relations between a candidate state secretaries Rex Tillerson and Vladimir Putin, and about the possibility of a relaxation of restrictive measures against Russia, which said trump, according to analysts Nomura.

“The dynamics of oil prices and a possible improvement in us-Russian relations give us optimism about prospects of the ruble,” write the experts. Risks for the Russian monetary policy Nomura sees foreign exchange interventions the Ministry of Finance and the Central Bank in buying dollars in the market since February, and also in significant “overbought” ruble portfolios of investment funds.

The geopolitical factor

Russia is not subject to the risks of protectionist policy of the United States, because the share of America in the structure of Russian exports is very small and is about 4%, according to a survey. The main vulnerability of the Russian economy in the context of the new course of the White house lies in the plane of geopolitics, namely, the existing sanctions. Softer rhetoric trump against Russia (if to compare with the position of the previous administration) increased the likelihood that the White house canceled or weakened restrictive measures. However, the Bank does not expect that it will happen in 2017.

The second risk relates to U.S. energy policy. If the United States will increase oil production, lower oil prices will hit Russia. However, it is difficult to predict when this might happen. Even if production growth starts now, the market and prices will feel the effects of not earlier than the second half or last quarter of 2017, Nomura concludes.