While the Western world grappled with geopolitical tensions last year, the Russian stockmarket enjoyed a rapid recovery - emerging as the top performer of 2016 - but managers see further upside to come, particularly for consumer-led stocks.
Russia's RTS index shot up by 52% in dollar terms over 2016, while the Micex index was up 27% in rouble terms, as rising oil prices and the election of Donald Trump as US President late in the year boosted prospects for the country.
But despite the strong rebound, managers are expecting another leg of the recovery for the Russian market in 2017, driven by an increase in consumption and improving relations with the US.
Robin Geffen, Neptune CEO and manager of the Russia and Greater Russia fund, said: "Although investors in Russia have been well rewarded for their patience over the last 18 months, there are good reasons for believing the best is yet to come."
In particular, Geffen points to improving oil fundamentals, falling inflation and "unwarrantedly low and easy to beat" growth expectations (the consensus forecast for GDP growth in 2017 is 1.1%, but Geffen estimates nearer 2%).
Geopolitics
The election of Trump as US President was a welcome boost for the Russian market as it could spell an improvement in relations between the two countries and, ultimately, lead to the removal of sanctions placed on Russia by the US.
Alongside the European Union, other countries and international organisations, the US applied sanctions against a list of Russian individuals, businesses and officials in response to the country's military intervention in Ukraine, which began in February 2014.
These made trade between Russia and the outside world more difficult, although managers say the stockmarket did not suffer from sanctions nearly as much as it did from falling oil prices.
Chris Bannon, co-manager of the Pictet Russian Equities fund, believes Russia's underperformance prior to last year was "80% related to the oil price, and 20% to geopolitics and sanctions".
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However, Geffen said: "Given Russia-US relations are at a multi-decade low, the change in US President means this relationship can only improve from here."
John Malloy, co-head of emerging and frontier markets at RWC Partners, added: "The odds are high that Putin will try to reassert himself as a world G8 leader, especially going into the presidential elections in early 2018. This could lead to the sanctions being lifted earlier than expected.
"Alexei Kudrin, the former Minister of Finance, is working on an economic program to be implemented post the election, which could reignite investors' interest in Russia."
In addition, following the introduction of sanctions in 2014, MSCI launched new composite indices that exclude Russia, including versions of its all-country and EM indices. The removal of sanctions could mean passive investors are more inclined to invest in indices that include Russia, driving foreign investment into the country.
Colin Croft, manager of the Jupiter Emerging European Opportunities fund, said: "The Russian market went up quite a bit even with geopolitics getting worse last year, so if the situation becomes more normal it will prop up the market even further, and global funds could start increasing allocations to Russia."
