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.

Advertisement - Article continues below

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".

Advertisement - Article continues below

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.




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
UK Economy

Mervyn King: why the Covid pandemic is a classic example of radical uncertainty

This week, Merryn talks to ex-governor of the Bank of England Merryn King about the pandemic and how to prepare for a future that is unknowable; the g…
2 Jun 2020
UK Economy

“Stealth” debt jubilees are here – and that’s a very good thing

We may not have had a full-scale debt jubilee, but many Covid relief measures quietly amount to “micro-jubilees”. That’s something to celebrate, says …
1 Jun 2020

Sales will bounce back, but will profits?

As the lockdown ends, everyday life will resume – just don’t expect business as usual, says Matthew Lynn.
31 May 2020

Most Popular

UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020
Global Economy

The MoneyWeek Podcast: James Ferguson on the virus, the lockdown, and what comes next

Merryn talks to MoneyWeek regular James Ferguson of Macrostrategy Partnership about what's happened so far with the virus; whether the lockdown was th…
28 May 2020