Editor's letter

Hitting Russia where it hurts

The piling up of sanctions against Moscow is making it difficult for Russian firms to operate, says John Stepek.

It appears that US president Donald Trump may finally have figured out how to hit Russia where it hurts. Last Friday, the US Treasury put seven Russian oligarchs, 12 businesses and 17 government officials on its Specially Designated Nationals list, which prohibits US citizens and companies from doing business with them.

The big difference this time round, as Marcus Ashworth points out on Bloomberg, is that the US government has also threatened secondary sanctions in other words, it has warned that it will also levy sanctions on anyone for "knowingly facilitating significant transactions for or on behalf of" those it has targeted in the latest round. As a result, says Ashworth, "a wide range of transactions involving Russia are now incredibly tricky for global economies and markets. The motto for all becomes if in doubt, don't touch'".

The plight of aluminium producer Rusal shows just how dramatic an impact these sanctions can have. The company is in danger of technically defaulting on bond interest payments next month not because it can't afford to pay them, but because it may well be locked out of the global financial infrastructure that enables it to do so. As Timothy Ash at BlueBay Asset Management put it in the Financial Times, that makes these sanctions "a major game changer in terms of how one should view Russian credit and market risks".

That's already sinking in, as investors sold Russia heavily in the wake of the news. Indeed, the whole situation has left Russia looking very cheap on a global basis. It's never been a market that I have been terribly keen to invest in (particularly not now that I need to worry about being able to get my money back out), but it is also fair to say that markets only ever get this cheap when the risks involved are high, so if you have an appetite for this sort of thing, now may be your chance. Just make sure that it's money you can afford to lose.

But this isn't just about Russia. It's also another major warning flag to investors who grew up in the heyday of globalisation, when capital and (to an extent) labour flowed freely across borders, that we have moved well beyond what some of us had perhaps assumed was "business as usual". The things we took for granted in the past easy access to exotic markets, a general consensus that globalisation and ever-growing levels of trade are good things, and that governments were largely on the same page when it came to free markets are now up for discussion again.

On the other hand, while politics and relationships in much of the developed world are deteriorating, we're seeing improvements in other areas that have long been troubled my colleague Matthew Partridge looks at the opportunities in one such area, sub-Saharan Africa, in this week's cover story.

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