Photographer: Chris Ratcliffe/Bloomberg

Trump Likes Putin. Investors, Not So Much.

Matthew A. Winkler is a Bloomberg View columnist. He is the editor-in-chief emeritus of Bloomberg News.
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It's been a decade since Donald Trump made Vladimir Putin his favorite world leader. "Look at Putin," he told Larry King on CNN in 2007. "Whether you like him or don't like him -- he's doing a great job in rebuilding the image of Russia and also rebuilding Russia, period."

More recently, Trump, the businessman, candidate for the Oval Office and now 45th president, had more praise for the Russian Federation president. "I will tell you in terms of leadership he is getting an A, and our president is not doing so well," Trump said in 2015.

Actually, the U.S. president at the time was Barack Obama, whose performance measured by 14 economic indicators was the second-best in four decades. The same can't be said of Russia's recent economic fortunes under Putin.

On the Way Down
Value of 100 rubles in U.S. dollars
Source: Bloomberg

The surest answer to how Russia is doing is revealed in its currency. The ruble lost more than 50 percent against the dollar during the past five years, making it the most weakened among the 31 most-traded currencies after Argentina's peso, according to data compiled by Bloomberg. (Latin America's fourth-largest country was in default for most of that period.) While Russia recovered from its own default in 1998, the ruble in 2016 remained toxic, suffering the most extreme fluctuations in value after South Africa's rand.

The 10 Most Volatile Currencies
Percentage swing in value during last 12 months*
Source: Bloomberg
*As of Jan. 30, 2017

Nations with chronically weak currencies suffer the characteristics of failing economies, including sluggish growth, accelerating inflation and distended current-account and budget deficits, along with faltering housing, wages and employment. While temporary declines can make exports more competitive, countries with habitual frailty in the foreign exchange market typically lack the diversity to offset their eroding economies. Russia is no exception in this dubious club. 

The Russian Federation under Putin is a victim of the correlation between an unstable currency and anemic gross domestic product. Russia was No. 2 last year among the Group of 20 countries with the lowest growth and currencies with highest volatility, according to Bloomberg data. Similarly, Russia's GDP is underperforming Eastern Europe the past four years, since just before Putin seized the Crimean Peninsula from Ukraine early in 2014. Prior to 2013, Russia's economy consistently grew at a faster rate than Eastern Europe's, according to Bloomberg data.

Since the U.S. and Europe imposed sanctions on Russia after the Crimea seizure, wages have been declining at an average rate of 2.3 percent per month, the worst trend since 2001 when the country was emerging from default, according to Bloomberg data. Employment growth is trending lower, with Russia losing 0.3 percent of its jobs every month during the past three years. Moscow property values also are taking a hit as the average cost per square meter in the city fell to $3,479, the lowest valuation since 2008.

For all its potential strength as an exporter of oil, Russia's balance of trade deteriorated more than 50 percent the past five years to $10 billion, from a $22 billion surplus. That's almost 30 percent less than Russia's average monthly trade balance since 2004 and results from exports falling faster than imports. Meanwhile, the budget deficit as a percentage of GDP widened to 3.89 percent during the most recent third quarter, the most since December 2010. During the first nine years of the century, Russia had a budget surplus, which enabled it to recover from its 1998 default.

Putin never bothered to take those surpluses from oil-export revenue in the first 14 years of the 21st century, when crude prices trended to more than $145 a barrel, and diversify his economy as German, Swiss and American business leaders hoped he would. So when oil fell more than 50 percent in nine months starting in June 2014, he proved his inability to grasp the economic challenges facing his country.

Corporate Russia is becoming a shadow of its former self, with only seven firms among the world's 500 largest publicly traded companies compiled by Bloomberg, down from 10 in 2011.

Even the good news turns out to be grim. For more than a decade since Bloomberg began compiling such data, the 50 companies that make up the MICEX Index of Russian stocks have turned more revenue into profit than at least 800 global peers in the MSCI Emerging Market Index. The 30-percent average Russian earnings before interest, taxes, depreciation and amortization is almost twice the global benchmark for profitability and the gap still is widening.

You'd expect investors to rally behind that kind of profitability, driving up stock prices. But it isn't happening. That's evident when you see that the average price-to-earnings ratio of Russia companies is 10, compared to 16 for global counterparts.

The bottom line: Global investors share none of Trump's confidence in Russia under Putin.

(With assistance by Shin Pei)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Matthew Winkler at

To contact the editor responsible for this story:
Jonathan Landman at