Stuck but not sweating: Some US investors in Russia are not knee-jerk selling

A trader works on the floor of the NYSE in New York
A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S. March 1, 2022. REUTERS/Brendan McDermid

March 4, 2022

By Davide Barbuscia

NEW YORK (Reuters) – US investors may be rushing to dump Russian assets after Western allies imposed sanctions on Moscow, but some fund managers with relatively low exposure to Russia are avoiding knee-jerk decisions amid trade restrictions and price falls.

International sanctions have increasingly punished Moscow after invading Ukraine, prompting Russian authorities to ban Russian brokers from selling foreign-owned securities.

As investors rush to announce they are trying to rid themselves of Russian investments, trade freezes and Moscow’s ban on selling foreign assets make doing so difficult.

However, some US investors can afford not to panic as their low exposure to Russian stocks and bonds does not dramatically impact portfolio returns, and sharp price declines and liquidity concerns discourage hasty exits.

“We don’t make any hasty decisions,” said Michael Kushma, chief investment officer of global fixed income at Morgan Stanley Investment Management.

“We are facing a very challenging illiquid situation… So if you take a position worry what will surprise us tomorrow,” he said, declining to disclose his exposure to Russia but saying the positions are due tensions rose.

In response to Western sanctions, Russia on Tuesday temporarily barred foreign investors from selling Russian assets, saying companies need a chance to voice a considered opinion. The Central Bank of Russia suspended trading on the Moscow Stock Exchange on Monday.

The moves came after valuations fell dramatically across asset classes over the past week.

Yields on 10-year Russian OFZ bonds, which move inversely with prices, hit their highest level since early 2016. London listings of Sberbank and Gazprom were all but wiped out.

Marcelo Assalin, head of William Blair Emerging Markets Debt, said his firm has very little exposure to Russian bonds and he is not trying to sell them, also noting the lack of liquidity in the market.

“I’m skeptical that investors will find liquidity here to sell sizeable positions, so I don’t think marketability is something investors can find in the market at this point,” he said.

Bernard Horn, senior portfolio manager at Polaris Capital Management, said his only direct exposure to the Russian market is shares in diamond mining company Alrosa, and he was in no rush to sell.

“We can’t trade the stock anyway and there’s no real reason for us to panic about it,” he said, adding that some investments have actually appreciated in value as a result of the Ukraine crisis.

“We have more exposures that are benefiting in some way from the scarcity of things like methanol, fertilizer, gas and copper. All of this, in a way, more than offsets our involvement in Alrosa,” he said.

Jon Maier, chief investment officer at exchange-traded fund provider Global X, said he has very little exposure to Russian assets and that there is no problem getting rid of that exposure.

On the other hand, he sees increased interest in an ETF that invests in companies that could benefit from cybersecurity technology adoption, he said, adding that weekly inflows into this fund as of Feb. 28 were about $80 million deceive.

The risk of cyber attacks from Russia has increased following Western sanctions.

Uncertainty about the conflict and the risk of further punitive sanctions distorted prices, fueling the case for holding assets at a later date or possibly even buying them cheap.

“This is a huge shock to us, but it’s a temporary shock,” said Morgan Stanley’s Kushma.

(Reporting by Davide Barbuscia; Editing by Megan Davies and Richard Pullin) Stuck but not sweating: Some US investors in Russia are not knee-jerk selling

Caroline Bleakley

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