“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.
Quietly, global hedge funds and brokers are betting on a renaissance in Russian assets, but legal restrictions make it a fiddly process, says Joseph Cotterill in the Financial Times. Banking sanctions and Russian counter-sanctions forced most Western money managers to mark down their Russian holdings to zero following the 2022 invasion of Ukraine.
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Local corporate bonds are “mostly off-limits to foreign institutional investors”, while international rouble trading has become very thin, down from billions of dollars a week before the war to “barely $50 million” now. Some traders are turning to proxies such as Kazakhstan’s tenge currency.
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.
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