As of the last weeks of 2016, Russian equities have been the star performers amongst the major global asset categories. Over the year to December 15 the rouble-denominated MICEX Index rose 26.7 percent. That result compared with a gain of 8.2 percent for the MSCI EM Index. The dollar-denominated RDX (Russian DR) Index was up a much more impressive 51.1 percent in the same timeframe.

Optimism is very high that Russian equity indices will be the best performers throughout 2017, as evidenced by the fact that the EPFR-tracked (Emerging Portfolio Fund Research) Russia-focused equity funds attracted USD451 million in the week to December 14 – the highest weekly inflow since the first quarter of 2011, while the largest Russia ETF (exchange-traded fund) saw its asset value rise 33 percent through a mixture of price appreciation and new subscriptions.

But what are investors actually betting on over the next six to 12 months? What are they assuming will happen to drive asset prices higher?

Politics always looms large in the investment risk calculus. As a very unusual year ends, the international headlines continue to be very mixed concerning Russia. The leadership changes in the U.S. and those now happening and expected across the E.U. should lead to a less confrontational relationship between the Kremlin and the West than has been the case since 2013. President-elect Donald Trump is a black box when it comes to geopolitics, but at least he promises to start with a more pragmatic stance towards Moscow than has been the case with the Obama White House. It is of course well understood that President Trump will be restrained in what he can actually do because he will have to deal with a Congress that remains very hostile to Russia. But a willingness to engage and to take into account Moscow’s core interests is a big improvement from what we have or could have had if Clinton had won.

With the appointment of a Secretary of State who at least understands Russia and is trusted by President Putin (assuming he is approved by Congress) investors are factoring in greater optimism that we may see the start of a staged reduction in sanctions by the middle or the end of the year. Political changes, such as the end of the Hollande presidency in France and the expected Brexit distraction, should also make it even more difficult for the E.U. to maintain the consensus in favor of full sanctions beyond their next renewal debate in July 2017.

Russia has also been more successful in building better relations with countries outside of the U.S., the E.U., and China. Diversification in geopolitics, as well as in trade and investment, has become a cornerstone of the Kremlin’s vision of Russia’s future. The recent sale of a 19.5-percent stake in Rosneft to a Qatari-led consortium and President Putin’s strong political support for the Saudi Arabian oil production cut initiative are successes of that policy. More recently, President Putin’s successful visit to Japan is a major step forward in building a stronger political and investment relationship between the two countries.

On the other hand, the level of criticism against Russia by the outgoing administration in Washington has intensified. Specific threats of an almost unprecedented level between the two countries cannot be ignored and may yet, despite Trump’s comments, lead to some additional confrontation between Moscow and Washington.

Beyond politics, the trend in the economy offers a solid reason for optimism. The GDP contracted by 3.7 percent in 2015 and is forecast to decline by 0.6 percent for 2016. That drift is expected to continue and should lead to growth in the first quarter of 2017. For the full year, top line growth of between 1.5 and 2.0 percent is achievable. That should translate into earnings growth of between 15 and 20 percent for the corporate sector. On top of a relatively inexpensive aggregate valuation for the equities, the new trends should help propel the market higher.

The caveat is that growth will not be uniform across all sectors. Anecdotally, especially in Moscow, there is still a lot of concern about the weakness of consumer spending and a low confidence among small business. Job losses and business closures are still expected in retail, hospitality, and the services sectors in early 2017. Offsetting that dynamic, growth should continue strong in sectors that are benefitting from greater competitive conditions in the economy, including from the cheap rouble.

Domestic politics should not provide any reason for greater risk concerns in the lead-up to the March 2018 presidential election. The announcement that opposition activist Alexei Navalny will participate in the presidential race will ensure a livelier coverage of the election by the foreign media, but otherwise should not lead to any surprises. Russia does not do Trump – or Brexit-style surprises.

Very likely there will be a steady stream of changes in personnel in key positions, as President Putin prepares his team for the next phase of the country’s economic and political transition. Nothing has happened so far, but rumors of change are consistent with the expected shift to a domestic economic focus in the next presidential term.

Despite the disproportionate attention accorded to global and domestic politics, as compared to the macroeconomic trends and earnings, the two factors that have had the greatest impact on investor perception and asset valuation are the oil price and the rouble’s exchange rate.

While some observers point to the Trump effect on equities, i.e. almost validating their view that Moscow was involved because “even investors know it,” that is incorrect. The real catalyst for the latest move in the market was the Al-Falih (Saudi’s Oil Minister) effect. Both the MICEX and the RDX Index rose by four percent in the weeks after the U.S. election. But the real kicker came around the OPEC meeting as optimism for a deal grew. The RDX has gained 11.5 percent from the days leading up to the November 30 meeting to December 15. That is on the back of a 24-percent rally in the price of Brent crude over the same period.

The Central Bank of Russia’s (CBR) rouble policy will be the second most important factor in 2017. Historically the rouble-to-dollar exchange rate has had a close correlation with the price of oil. That changed earlier this year, as the CBR has effectively blocked the rouble from rallying with oil’s recovery. If the oil price were to fall steeply for some reason, then the rouble-dollar rate would be allowed go with it, tick for tick. But maintaining a weak rouble is at the very core of the government’s localization strategy and its efforts to attract inward investment in the manufacturing and agriculture sectors. The CBR is independent in most respects, but President Putin has made his preference for a “competitive currency” very clear. Over the past two weeks as the price of oil rallied 24 percent, the rouble only appreciated by 2.6 percent against the dollar. Without “soft-intervention,” the rouble-dollar rate would be closer to RUB50 at this stage.

Politics is a distraction more often than not. It provides the script which keeps the public enthralled and engaged in one of the best real-life soap operas. But this time next year, when analysts review what drove Russian asset prices in 2017 it will be the actions of Khalid Al-Falih and Elvira Nabiullina – as influenced by their respective bosses Prince Mohammad bin Salman and Vladimir Putin – that will likely have proven most decisive.