Bragging rights to the world's hottest large stock market this year belongs to an unlikely leader: President Vladimir V. Putin in Russia.
The combination of high Russian stock prices and a floating ruble has generated some of the best investment returns on earth in 2019. In dollars, Russian equities are more than 28 percent (and more if you are a factor in dividends). S & P 500, on the other hand, is above 16 percent.
There are basic economic reasons for the Russian rally, especially the rebounding price of crude oil, a cornerstone of the country's economy.
"This has been strongly driven by beliefs of political risk," said Jason Bush, senior analyst at Eurasia Group, a consulting firm. "Last year, concerns about new US sanctions against Russia were very intense."
Last year after the United States imposed sanctions on prominent Russian businessmen, officials and businesses – a response to Russia's disruption in 2016 presidential elections, including – investors fled.
The country's stock market fell by over 15 percent in dollars. Prices also fell on the bond market, making it more expensive for people and businesses to borrow money. As the relationship between Russia and the West deteriorated, investors responded to more bad news. "It's an invaluable country, that's how investors looked at it last year," said Lale Akoner, a global market strategist at BNY Mellon Investment Management.
But things are thawing. In January, the State Department lifted sanctions on a number of Russian companies. The State Department did not impose an expected second round of sanctions related to the March 2018 poisoning in the UK by a former Russian intelligence agent. And congressional laws aimed at punishing Russia stopped.
"These great financial sanctions that people were worried about – which never materialized," said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics.
It has left investors to dwell on basics: a Russian market where stocks appeared cheap after last year's sales, especially in light of the rising world market price of 45 percent earlier this year. That rally helped increase the value of the ruble and stopped the slide on the Russian stock market, and most of the value is in energy companies.
"If the oil does, Russia will do well," said David Hauner, a market strategist at Bank of America Merrill Lynch.
Across the board, analysts lift their expectations of Russian companies' profits this year, and some of these companies benefit from rich dividends to shareholders. (The dividend yield of the MSCI Russia index is three times as high as the S&P 500 index.) Russia's relative isolation from the US and China trade war is another selling point.
But the buyer is aware: Even though it has its good year, the Russian stock market is known for volatility. Making money requires impeccable timing.
While Russia's economy is hitching to export goods, its foreign policy has for years been in conflict with its major trading partners in the EU. In the long run, the post-Soviet Russian government has repeatedly become a policy of weakening the ruble in order to make financial shocks worse, hurting dollar-denominated investments.
The Russian RTS index, for example, is still down about 45 percent from its peak in 2008.
And the Russian economy is showing signs of cooling, rising only 0.5 percent in the first quarter of 2019 compared to the previous year.
"One thing about Russia is that there are always surprises," said Mr. Bush from the Eurasia group. "And they are almost always negative."
Andrew E. Kramer contributed with reporting.