Can investors stay optimistic about Russian stocks?

Moscow Kremlin on economic data background. Sanctions in Russia

(Image credit: Getty Images)

“War and peace are notoriously difficult to price,” says The Economist. Yet with Donald Trump pushing for a ceasefire in Ukraine, investors are starting to do exactly that. The Russian rouble has rallied more than a third this year against the dollar, and the local MOEX share index has gained 15% on bets that Russia’s heavily sanctioned economy might “become slightly less walled off”.

Sanctions make direct dealing in Russian assets all but impossible for Westerners, but Russian-linked firms that trade in other markets have been booming. Hong Kong-listed aluminium miner Rusal is up 63% this year, while shares in Raiffeisen – an Austrian bank with interests in Russia – have rallied more than a third.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Are investors playing a dangerous game by betting on Russia?

The logic of the Russia trade is simple enough – buyers think that “deeply discounted” Russian securities could “soar in value” if sanctions are lifted, says Bloomberg News. Traders are making a “massive geopolitical gamble”. Negotiations can be difficult to predict, especially in the era of Trump – the US president threatened Putin with new banking sanctions as recently as 7 March if he didn’t play ball with peace plans. Investors who move too early to re-enter the country also face reputational and legal risks if sanctions are later “re-imposed”.

Whatever happens to the short-term Russia trade, the idea that we are heading for a durable rise in US foreign direct investment into Russia is for the birds, say Georgi Kantchev and Joe Wallace in The Wall Street Journal. America has never had a “significant” economic relationship with Russia. If anything the two economies compete with each other as energy exporters.

Even before the war, America’s $6 billion in goods exports to Russia were only comparable in volume to US trade with Egypt. Ongoing UK and EU sanctions would make re-entering the Russian market a “compliance nightmare” for US multinationals.

Russia’s economy has also been changed by three years of war, with the state taking a much larger role. Assets have been seized from foreign firms and “redistributed” to regime “loyalists”. Western businesses are unlikely to get their confiscated capital back.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.