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- Investors are looking for discounted Russian assets that could jump in value on a Ukraine peace deal.
- President Donald Trump has fueled hopes the war might end soon and Russia could rejoin global markets.
- Risks include a resumption of the conflict and a reimposition of sanctions.
Investors are quietly searching for beaten-down Russian assets that could surge in value if a peace deal is struck and capital floods back into the country. It won’t be easy money.
Traders have been snapping up shares of foreign-listed Russian companies and bought Kazakhstan’s tenge currency as a ruble proxy, Bloomberg reported. Wall Street banks have been hunting Russian corporate bonds to satisfy demand from Middle Eastern family offices, and pitching their clients on ruble-linked derivative contracts called “non-deliverable forwards” that bypass sanctions, per the outlet.
“There’s an aggressive search for securities of Russian issuers around the world,” Moscow-based investment banker Evgeny Kogan told Bloomberg. “Investors in general are asking how quickly they can enter the Russian market.”
Russia’s invasion of Ukraine in early 2022 sent investors scattering and spurred Western countries to impose sanctions that have choked Russia’s banking sector and wider economy.
US President Donald Trump is working to broker an end to the war and spoke to Russian President Vladimir Putin on Tuesday, but the pair couldn’t reach terms on a cease-fire meaning further negotiations lie ahead.
Rising ruble
Eswar Prasad, a senior professor of trade policy at Cornell University and a senior fellow at the Brookings Institution, told Business Insider: “The prospect of a peace deal and the lifting of sanctions on Russia is likely to result in a wave of financial capital flowing into the country in the hopes of profiting from rebounds of its economy, financial markets, and currency.”
Trump’s confidence that a truce isn’t far away has contributed to the Russian ruble rising more than 20% against the dollar this year. The currency is now the strongest it’s been in more than seven months.
However, a combination of sanctions and internal controls has made it tricky for Western institutional investors to bet on Russia. That has fueled demand for non-deliverable forwards that don’t involve any Russian nationals or physical assets.
“The main ruble trade is in the NDF market but it is largely hedge funds participating in this trade due to the relatively low liquidity,” Roger Mark, a fixed-income analyst at Ninety One, told BI.
“The rationale is clear — potential spot appreciation on the hope of the war ending and a normalization in Russia’s economic relationship with the US/West,” he said.
‘High risk’
Still, Mark cautioned that a cease-fire is far from assured, Trump could still escalate sanctions against Moscow, the ruble has strengthened considerably already, and reopening Russia to the world could lead to capital flowing out instead of in.
“With sanctions risks still meaningful amid an uncertain policy outlook, it remains a high-risk currency for institutional investors to allocate to, especially given its poor liquidity and off-benchmark nature,” Mark said.
Betting on Russian assets also poses legal and reputational risks to investors if they act too soon, and even if Russia and Ukraine lay down arms, there’s no guarantee that conflict won’t flare up again.
“Uncertainty about the durability of any peace deal and the possibility of the reimposition of sanctions in the future could restrain such capital inflows into Russia, once the initial euphoria has passed,” Prasad said.