The 12 worst investments of 2014, #11: Russian corporate bonds

Decline in 2014: -14.78%

See all 12 of 2014’s worst investments here

What happened?

Political panic in Crimea hit Russia’s economy hard this year. Markets lost confidence in Russia’s economic stability, and yields on Russian corporate bonds went up as billions of dollars’ worth of capital left the country. EU-US sanctions targeted Russia’s state finances, energy and arms sectors, with dramatic consequences. “People thought sanctions were about visas for oligarchs wanting to visit Disneyland. But they are much more important”, said Sergio Trigo Paz, BlackRock’s head of emerging market debt.

The falling value of the rouble played a major part in the decline of corporate bonds, making it far more expensive for Russian corporations to pay back dollar debts. “If you have currency debts, you must be wondering how you are going to pay them off now”, said Timothy Ash at Standard Bank.

Who are the losers?

Putin and his oligarch pals. Many of the hardest-hit corporations are majority-owned by the Russian government, including Sberbank, Gazprom and Rosneft. Foreign funds with investments in Russia have also suffered. The Neptune Russia and Greater Russia fund, for example, popular with small investors, has collapsed in value by 42% from the beginning of 2014, thanks in part to its holdings in the Russian energy sector.

Who are the winners?

Russian companies who sell internationally, but buy locally, have fared better. According to The Daily Telegraph, steel producers, base metal groups and fertiliser exporters have profited neatly from the chaos around them. The US Department of State probably doesn’t feel too shabby either.

What have we learned?

Western sanctions are not just a slap on the wrist.

See all 12 of 2014’s worst investments here