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Traders Are Racing to Bet on the End to Russian Sanctions
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Traders Are Racing to Bet on the End to Russian Sanctions
Sujata Rao and Natasha Doff
5 min read
(Bloomberg) -- From his office in midtown Manhattan, securities lawyer Grigory Marinichev is fielding calls from clients across the world with one question: How can we trade Russian markets?
His answer is simply that you can’t, with hundreds of billions of assets still frozen under US sanctions. But as speculation swirls that the re-opening of Russian financial markets is perhaps just weeks away, the desire to get in early means that for some, Marinichev’s warning is just a call to find a workaround.
So they’re turning to the Hong Kong market and snapping up shares listed there of United Co. Rusal International PJSC, the Moscow-based aluminum giant, at such a fast clip the price has jumped some 75% this month. In Vienna, they’ve bid up shares of Raiffeisen Bank International AG, an Austrian bank with a Moscow-based subsidiary, by 35% this year; and in Budapest, they’ve sent OTP Bank Nyrt, which still has operations in Russia, up 11%.
It’s the same in currency markets. Kazakhstan, a major Russian trading partner, has seen the tenge strengthen about 4% this month, one of the biggest increases among currencies around the world.
Marinichev, who worked in Moscow until 2022 when he evacuated with his family, declined to discuss specific clients, but said they are mostly hedge funds, family offices and private investors.
“They want to be the first ones in the trade,” said Marinichev, a partner at Morgan, Lewis & Bockius in New York. “But for now, there is not much we can tell them other than to follow the news.”
That money managers are buying up anything that has even a tenuous link to Russia is a sign of how anticipation is building as President Donald Trump rushes talks to end the war in Ukraine, and just how isolated the country has become from Western finance. While US officials have floated the possibility that Russian sanctions relief could be part of a peace deal, it’s still just one part of a complex web of restrictions.
Many investors caution against reading too much into market moves in a handful of speculative assets. It’s far from clear how sanctions could be lifted, given that some of the restrictions are codified into US law and need Congressional approval before being removed. There’s also the question of European sanctions, which are likely to remain.
“It would take years to make Russia investible again,” said Alexander Kolyandr, a senior fellow at the Center for European Policy Analysis and former strategist at Credit Suisse in Moscow. “But people are struggling to find good ideas at the moment and a possible peace deal creates obvious opportunities.”
Within Russia’s walled-off markets, stock prices and trading volumes are also surging. The ruble has soared 15% versus the greenback since the beginning of the year, making it the best-performing currency.
But trading in those assets is only accessible to locals and investors from so-called friendly jurisdictions that don’t have any sanctions against Russia, such as the UAE and Kazakhstan.
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Before the war, foreign investors had around $150 billion in Russian stocks and government bonds, and the assets were a major component of most emerging-market indexes. Most of that money has since been pulled out or become trapped in non-resident bank accounts in Moscow.
“That was pretty brutal as we wrote down the stocks to close to zero,” said Alexandra Morris, an investment director at Skagen. “We still have considerable dividends from our shareholdings in Russia, so I guess it’s a sort of a free option we have in our fund.”
She said she isn’t hopeful of being able to access those funds anytime soon, adding, “I wouldn’t make too much of it in the short term.”
Gyorgy Palfi is another money manager, who ran a Russia-focused fund that’s since been frozen. In his current role as head of equities at VIG Asset Management Hungary, he’s buying shares in banks including Raiffeisen and OTP — two European lenders still doing business in Russia.
In the case of Raiffeisen, which has been trying to sell its Russian unit for years, the bank has accumulated more than €4 billion ($4.2 billion) in excess stranded capital. “It would be very favorable for Raiffeisen to be able to get that profit out,” Palfi said.
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Trading in Russia-related assets can be a legal gray area. Paul McNamara, a portfolio manager at GAM UK Ltd. in London, says he’s received messages from bankers offering ruble bonds that were sold before the war by organizations, such as the European Bank of Reconstruction and Development and the World Bank, with prices available on request.
The securities aren’t sanctioned, but investing in them would require talks with compliance and clients might object, he said. So far, he’s staying away.
To Kieran Curtis, a fixed-income fund manager at Abrdn, the Kazakh tenge is a relatively cheap trade that will benefit from Ukraine peace talks. He’s skeptical that the US would lift sanctions, but given Trump’s posturing to Russia, it’s not out of the question, he said.
“It’s going to be a really complicated decision,” he said. “If sanctions are lifted and it goes back into indices, it will have a large weight. That will force all managers to take the decision extremely seriously.”
--With assistance from Marton Eder, Veronika Gulyas and Kira Zavyalova.
