LONDON (Reuters) - It seemed the slam-dunk emerging markets trade of the year - an economy starting to grow after a two-year funk, rising oil prices, and above all, a friendlier White House that was expected to lift punitive curbs on investment and fundraising.
But emerging markets fund managers who bought Russian equities in January will have seen the MSCI Russia equity index tumble more than 15 percent in dollar terms since then.
It fell as much as 2 percent at one point on Thursday, hitting 15-month lows and has fared worse this year than even Qatar, which is locked in a high-profile spat with its Gulf neighbors:
Russia's setback is part of a global cooling of 'Trump trades'. These were mainly based on hopes that President Donald Trump would boost the U.S. - and global - economy through spending increases.
But he was also expected to repeal sanctions imposed in 2014 to punish Russia for its role in the Ukraine crisis. As a result, most foreign investors were overweight Russia until this month, holding more Russian stocks than the country's share in the benchmark indexes, according to data from Renaissance Capital.
This seemed obvious as an apparent "bromance" between Trump and Russian President Vladimir Putin promised a thaw in diplomatic ties. But far from lifting sanctions, U.S. lawmakers this week voted for fresh, stickier, curbs while preventing Trump from easing existing ones.
"The two theses behind the overweight have both collapsed - oil prices and Trump," said David Hauner, head of emerging markets cross-asset strategy at Bank of America Merrill Lynch.
"People were bullish on oil, which turned out to be wrong, and there were hopes on sanctions relief, which also turned out to be wrong."
Hauner, among those bullish on Russia in January, advised clients in March to reduce exposure to the stock market and has since cut Russian bonds too, citing worries over how heavily foreigners were positioned in both markets.
Crude futures meanwhile were near six-month lows, despite repeated supply cuts and price forecasts have fallen each month in 2017. Oil revenues make up almost half the government budget revenues while six of the 10 biggest Russian stocks by market capitalization are energy firms.
The latest steep losses mean state shipping firm Sovcomflot - specializing in transporting oil and gas - will delay a planned share sale which had been planned for this week, a source told Reuters on Thursday.
On the domestic front, things are looking up. The economy should grow 1.5 percent in 2017 after two years of contraction while company earnings have improved.
Russian earnings-per-share (EPS) have on average bounced 27 percent from troughs hit in 2016 and should expand 7-9 percent in the coming six months, noted Michael Bolliger, head of emerging market asset allocation at UBS Wealth Management.
"That part of the Russia story is intact," Bolliger said but admitted the decision to overweight Russian stocks had proved "painful". "We are having discussions on how to reposition."
Russian bond investments have fared better, earning dollar-based returns of over 10 percent this year, thanks to a conservative central bank that has cut interest rates very slowly. It is expected to ease policy on Friday by 50 basis points but has pledged to keep rates well above inflation.
But high interest rates have lured record fund inflows into Russia's domestic bonds, in turn boosting the rouble 8 percent against the dollar until this week RUB=.
That has effectively severed a long-standing correlation between the currency and oil. So while crude slid 11 percent off May peaks, the rouble lost 1.2 percent, Christopher Granville, managing director at consultancy TS Lombard said in a note this week.
"The rouble's de-coupling from oil compounds the blow for Russian oil stocks," Granville said, advising clients to re-focus on domestically oriented sectors such as retail and avoid energy stocks that face oil price weakness and rouble strength.
Reporting by Katya Golubkiova and Zlata Garasyuta in Moscow; graphic by Ritvik Carvalho; editing by Anna Willard