International investors appear increasingly interested in Russian assets, seeking avenues to bypass sanctions as diplomatic relations between the United States and Russia show signs of thawing.
According to Bloomberg, there has been renewed investor enthusiasm for Russian assets, with many international parties attempting to make strategic moves amid the shifting geopolitical climate. Grigory Marinichev, a securities attorney at Morgan, Lewis & Bockius, stated, "They want to be the first in this area. But at the moment we cannot tell them anything except to follow the news." This highlights the current ambiguity surrounding legal pathways for such investments.
Events have unfolded aggressively, particularly on the Hong Kong Stock Exchange, where investors recently rushed to buy shares of aluminum giant United Co. Rusal International PJSC, leading to stock prices soaring by approximately 75% in February alone. Investors have also targeted shares of Raiffeisen Bank International AG, which operates in Moscow, witnessing their prices rise by 35% this year. Meanwhile, on the Budapest Stock Exchange, shares of OTP Bank, another financial institution still conducting business with Russia, increased by 11%.
This investor activity is also reflected on the currency markets. For example, the Kazakh tenge has appreciated by about 4% this month, making it one of the best-performing currencies globally during this period.
Marinichev noted the variety of investors, primarily hedge funds, family offices, and private investors, who are eager to capitalize on this moment. Despite the lack of direct investment channels, Marinichev's clients are exploring options through markets like Hong Kong. He elaborated, "They want to be the first...to create unique opportunities. Yet we currently face constraints due to the legal circumstances surrounding these transactions."
Much of this renewed interest stems from rising expectations about possible easing of sanctions, currently enshrined in US legislation, which will require Congressional approval to be lifted. Alexander Koljandr, senior researcher at the Center for European Policy Analysis, stated, "It will take years to make Russia again attractive for investments. But finding good investment ideas now is difficult, and possible peace creates obvious opportunities.” This reflects the cautious optimism among investors as they weigh the potential rewards against the uncertain geopolitical backdrop.
The investment scene is also seeing growth within the Russian stock market itself, with Russian stocks experiencing rising prices alongside increased trading volumes. The ruble has emerged as the most effective currency this year, appreciating over 14% against the US dollar since January.
Nevertheless, trading these assets remains restricted primarily to local investors and those from so-called ‘friendly jurisdictions’—nations not imposing sanctions against Russia, such as the UAE and Kazakhstan. Prior to the military operations, foreign investors had held about $150 billion worth of Russian stocks and government bonds, pivotal components of most developing market indices. Since then, much capital has either been withdrawn or immobilized within non-resident bank accounts based in Moscow.
This situation has been particularly harsh for investors, summarily marking down stocks to nearly zero value—a painful reality for many actors within the financial arena. Alexander Morris, investment director at Skagen, remarked, "I think it is some sort of free option we have within our fund," illustrating the precarious position many find themselves in as they navigate uncertain investment landscapes.
Gyorgy Palfi, head of equity at VIG Asset Management Hungary, is among those buying shares of banking institutions like Raiffeisen and OTP, recognizing the long-term advantages of investing amid turmoil. He asserted, "For Raiffeisen, which has long tried to sell its Russian unit, being able to retrieve this profit would be very lucrative.”
The grey areas surrounding the legality of trading Russian assets only underline the complex dynamics at play within the market. Portfolio manager Paul McNamara from GAM UK Ltd. shared experiences of receiving offers to buy previously issued bonds by entities such as the European Bank for Reconstruction and Development, signaling the depth of the market's current intricacies.
Even as this investment surge takes place, the specter of sanctions continues to loom large. Last evening, former President Donald Trump extended certain sanctions for another year, declaring, "The actions and policies referred to in these orders continue to pose an unusual and extraordinary threat to the national security interests of the United States." The lasting impact of these statements suggests continued caution as investors chart their course amid unpredictable waters.