Traders piled into assets likely to benefit from a potential Ukraine peace deal after the Kremlin signaled that Russian President Vladimir Putin and U.S. President Donald Trump will hold talks in the coming days.

Ukrainian and Russian Assets Surge

Ukraine’s dollar bonds were the best performers in emerging and frontier markets tracked by Bloomberg. European currencies rallied, with Poland’s zloty gaining as much as 0.6% against the dollar. In equity markets, a Warsaw-listed Ukraine stock index notched its biggest gain since May. Shares of Rusal International PJSC, one of the few Russian companies still listed on major global exchanges, trading in Hong Kong, surged in above-average volumes; Raiffeisen Bank International AG, the Austrian lender with a Moscow subsidiary, rose more than 10%.

Cautions Against Over-Optimism

Roger Mark, a fixed-income analyst at Ninety One UK Ltd. in London, described news of a “Trump summit” as “positive” but cautioned that progress is needed for the Ukraine bond rally to last. “The focus will shift to what is discussed at the meeting,” he said. These moves are reminiscent of an earlier rally this year when markets were still betting Trump would deliver on his campaign promise of bringing peace to Ukraine early in his presidency. But that rally fizzled as his efforts to persuade Putin to end the conflict came to naught.

Measured Skepticism

Since then, Trump has taken a tougher line with his Russian counterpart, threatening to impose heavy economic penalties on Moscow if Putin doesn’t comply with an Aug. 8 deadline to reach a cease-fire agreement with Ukraine. Currently, many of the related assets still trade well below February levels, when optimism about a peace deal and potential easing of U.S. sanctions on Russia briefly sent prices soaring. Kieran Curtis, a portfolio manager at Aberdeen Group Plc in London, expressed skepticism about whether this latest attempt to end the conflict would be successful. “I would be more cautious than the market appears to be,” Curtis said. “There hasn’t been a lot of effort from the Russian side to find a solution that is acceptable to all parties in recent months, and I don’t see how one meeting will solve the problem.”

Impact within Russia

Inside Russia, the Moscow Exchange rose as much as 5%, and the ruble strengthened 0.5% against the dollar, making it one of the world’s best-performing currencies. Meanwhile, a Goldman Sachs-compiled basket of European defense stocks fell as much as 5.2%, to its lowest level since May. UBS’s Ukraine Reconstruction Basket and shares of Hungary’s OTP Bank, which still has operations in Russia, rose to all-time highs. The performance of these assets underscore the complex and interwoven nature of geopolitical events and their potential impact on diverse sectors.

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