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Russian stocks have lost all their post-US election gains in local currency terms, as rising tensions between Russian and the USA in the wake of the US airstrike on Syria weigh on the country’s markets.

The strike in the early hours of Friday morning had an immediate impact on Russian markets, and they have continued to suffer this week as the tensions showed no sign of receding.

On Monday G7 foreign ministers stepped up their criticism of Moscow, after Russian president Vladimir Putin condemned the US attack as a “violation of international law”.

The Moscow Exchange’s benchmark Micex index fell 2.4 per cent on Monday, and tumbled again on Wednesday after a slight recovery yesterday. At publication time it was down 1.4 per cent for the day to 1950, its lowest level since before the US election.

The index hit an all-time high at the start of the year, encouraged by hopes that President Trump’s surprise victory would bring a normalisation in Russo-US relations.

However, it has since fallen back 15 per cent, as investors saw little sign of an imminent lifting of economic sanctions during President Trump’s first weeks in office.

The stronger rouble – which was also boosted by the Trump victory, but has been strengthening over a longer period as global oil prices have recovered – means the the losses have been less severe in dollar terms, but the dollar-denominated RTS index is still down 6 per cent since the start of the year.

Slava Smolyaninov, chief strategist at Russian broker BCS, said “it’s impossible to imagine [Russian markets] as a net winner” from the rising tensions, adding that “we are not surprised at all by the move, and wouldn’t be surprised to see further rouble weakness and selloff on the domestic market”.

His views were echoed by analysts at Brown Brothers Harriman, who predicted this week that “it would not be surprising to see the rouble unwind a good part of [its] gains” made since the election.

However, Mr Smolyaninov highlighted that outflows from the latest developments may be limited by the fact that many of the most nervous investors have already exited.

“The hottest money left late February and early March when it became obvious that no sanction relief is in sight”, Mr Smolyaninov said.

He said optimism in the wake of the US election had caused Russian markets to become “a little bit out of sync” with peers, but they have since given up almost all their gains relative to emerging markets more widely.

The dollar-denominated RTS index is down 6.2 per cent since the start of the year, and up 9 per cent since the day after the US election. That compares with the wider MSCI Emerging Markets Index, which has risen 8.44 per cent since the election and more than 10 per cent since the start of the year.

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