Settling Scores

Investor Ruslan Pichugin discusses how stock markets might respond to the results of the meeting between Putin and Biden in Geneva.

Vladimir Putin and Joe Biden will meet on June 16 in Geneva. This event will be the first encounter between the presidents of Russia and the United States since July 2018, when the Russian president met with Donald Trump.

Russia and the United States announced this meeting in mid-April. According to the Kremlin, the presidents will discuss the current state and prospects of the U.S.-Russian relations, strategic stability and the most urgent questions of international politics including cooperation on the pandemic and in regional conflicts. At the same time, predictions concerning the results of the summit differ significantly in Russia and the West.

For example, Deputy Minister of Foreign Affairs of the Russian Federation Sergei Ryabkov directly stated, “Washington’s and Moscow’s agendas diverge, yet Moscow is ready to address any issues raised by Washington. Unfortunately, the reciprocal readiness is observed more seldom.”

White House press secretary Jen Psaki said Washington seeks “predictability and stability” in bilateral relations. According to her, the U.S. expects the conversation to be complicated because of the countries’ differences and conflicts in the areas where they disagree. She also stated that one of the topics on the agenda will be security in Ukraine and Belarus.

This time, the two countries have the widest range of disagreements possible: about the allegedly Russia-backed hackers, the issue of Ukraine, the situation in Belarus and many other questions. Russia and the U.S. do not have a whole lot of areas for cooperation — if we do not count the notorious counterterrorism, there is only climate change left. The latter will only be relevant after the COVID-19-related issues are completely solved.

However, the fact that the Geneva summit is happening is already good news. News stories concerning the meeting between Biden and Putin help stabilize the national currency. For investors, they might signal a positive change in U.S.-Russian relations. Indeed, within the last three weeks, the ruble has strengthened by 3.4%, surpassing its record on March 16. Shares of the companies dependent on the Russian currency followed suit, including retailers, telecom companies and Aeroflot.

Biden and other public officials have already announced his summit agenda on multiple occasions. Russia, however, has not released its plan. We do not know much about it apart from Ryabkov’s statement about the fact that Russian and American agendas diverge. Most politicians and observers do not expect big breakthroughs on the points suggested by the U.S. president. A lot of Western media sources claim that Biden is not interested in having a new “reset” with Russia. The U.S. is planning to discuss the same questions it has raised many times before the summit. Furthermore, Russia is hardly a current priority in the U.S. foreign policy agenda, despite what Russians might think.

That is why the U.S. can afford to put sanctions against the Nord Stream 2 main operator on hold.

In general, it is important for Russia that the summit is happening. It might raise the questions of NATO expansion and the “red lines.” The two countries will likely discuss arms control. In general, the assumed Russian agenda will be about stability. This will probably be the only area where the agendas of the two countries overlap.

The results of the summit are still yet to be seen, but in general, we can say that the relations will not deteriorate after it since that will defeat the purpose. It would be positive if both countries agree that the summit was beneficial and if they resume high-level bilateral contacts. Obviously, it would be even better if the U.S. and Russia will agree on some concrete steps to improve their relations. The ambassadors will likely return to their posts and the staff will resume their work in consulates. Russia will benefit from these events since the ruble will continue to strengthen, the arguments to toughen monetary regulation will soon fade and the economy will recover faster.

However, we cannot exclude the negative scenario. There is still a slight possibility of mutual disappointment. In this case, the ruble will drop to its May levels. The shares of the companies who had benefited from the more favorable exchange rate will drop. This, however, will get balanced out by the fact that the shares of oil exporters will grow. Since May, prices for “black gold” have increased by 8%, which added to the ruble strengthening its positions.

Now, one barrel is about 5,000 rubles, which is a reasonable level. If the ruble drops after the summit, one barrel is going to be worth 5,300 rubles. If we talk about the Russian economy in general, we should not expect any other significant or rapid changes. Presently, the Russian Central Bank is implementing policies to curb inflation, which indirectly helps stabilize the ruble. The Russian economy has adapted to sanctions, which is why even if bilateral relations deteriorate, Russia is not going to face any macroeconomic challenges.

Obviously, both presidents have some strategic plans, and it looks like neither of them is interested in destabilizing their relations any further. Both Russia and the U.S. need predictability in their mutual relations.