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Markets may underestimate the impact of sanctions on Russian assets

Schedule dollar to ruble exchange rate at intervals of 1 week

Markets may underestimate the impact of sanctions on Russia, says Tim Ash, a strategist for developing countries BlueBay Asset Management ($ 67 billion under management – approx. It is quite possible that, considering the signal from the US Treasury, asset managers will prefer to avoid the ruble, OFZ and other Russian securities. In addition, they may be required by investors and ESG considerations *.

Responsible investing is an investment approach that seeks to incorporate environmental, social and governance factors (ESG factors) into investment decisions to better manage risk and provide sustainable and long-term return on investment (defined by PricewaterhouseCoopers, for more information on ESG investing, see read here)

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“Many American financial institutions will think very carefully about what it is like and what their end investors want from them,” the expert told Bloomberg TV. – “Will they buy Russian bonds, given that the US authorities do not want them to finance the Russian government? I don’t think so, especially considering the popularity of the ESG concept (which, it is believed, Russian assets do not quite match – approx. ”.

Investors seem to believe that the sanctions will not have much impact on the demand for OFZ, but they could be seriously wrong, warn the strategist.

“It’s not about inflation or monetary policy, but about sanctions risk,” says Tim Ash. – “If the sanctions are tightened, you can get stuck in a position that you cannot sell.”

The sanctions are likely to increase the cost of borrowing for Russia, the expert concludes. But there are other opinions as well.

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“They will not go anywhere from OFZs, since there is no profitability in developed markets with such a credit quality as ours,” believes Alexander Losev, general director of Sputnik AM in Moscow. “We see from practice that the difference of 5% between dollar and ruble instruments is enough for investors to turn a blind eye to any geopolitical risks.”

On Thursday, the United States imposed new sanctions against Russia, which, in particular, prohibit American financial institutions from participating in initial placements of OFZs, which will be issued after June 14, 2021.

Russian assets reacted to this news with a rather sharp decline, which, however, was quickly won back. Ultimately, OFZs closed their best week since November, the ruble became the best currency in the EM segment, and the dollar RTS index closed at weekly highs.

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