In his office in Midtown Manhattan, securities lawyer Grigory Marinichev constantly receives calls from clients around the world, all asking the same question: How can they trade Russian assets?
His answer was simple: No, because hundreds of billions of Russian assets remain frozen under U.S. sanctions. However, as speculation grows that the Russian financial market may reopen to the outside world soon, some are eager to enter the market early, leading Marinichev's warnings to encourage them to seek alternative ways.
As a result, they turned to the Hong Kong market, buying up shares of United Company Rusal International PJSC listed there. The stock of this Moscow-based aluminum giant has been snapped up rapidly, with its price soaring by about 75% this month. In Vienna, investors inflated the stock price of Raiffeisen Bank International AG, an Austrian bank with a subsidiary in Moscow, whose stock price has risen 35% this year; in Budapest, the stock price of OTP Bank Nyrt, which continues to operate in Russia, has also increased by 11%.
The stock price of United Company Rusal has returned to the level just after the outbreak of the Russia-Ukraine conflict.
The situation in the money market is similar. Kazakhstan, as Russia's main trading partner, has seen its currency, the tenge, appreciate by about 4% this month, making it one of the best-performing currencies globally.
Marinichev only evacuated Moscow with his family in 2022. He declined to discuss specific client information but stated that most of these clients are hedge funds, family offices, and private investors.
'They want to be among the first to enter the trading market,' Marinichev, a partner at Morgan, Lewis & Bockius in New York, said. 'But for now, aside from keeping them updated on the news, we have nothing else to tell them.'
Fund managers are scrambling to buy assets with even a slight connection to Russia, indicating that the market's expectation of Trump accelerating an end to the Russia-Ukraine conflict is heating up, and reflecting how isolated Russia has become in the Western financial system. Although U.S. officials have suggested that sanctions against Russia might be lifted as part of a peace agreement, this is still only a part of a complex web of sanctions.
Many investors warn against overinterpreting the market trends of a few speculative assets. Given that some sanctions have been codified into U.S. law and require Congressional approval for removal, it remains unclear how sanctions will be lifted. Additionally, European sanctions may also continue to exist, which is another issue.
'It may take years for Russian assets to become investable again,' said Alexander Kolyandr, a senior researcher at the Center for European Policy Analysis and former strategist at Credit Suisse in Moscow. 'But currently, people are trying to find good investment opportunities, and a potentially achievable peace agreement has brought about significant opportunities.'
In Russia's closed domestic market, stock prices and trading volumes are also soaring. Since the beginning of the year, the ruble against the dollar has risen by 15%, becoming the best-performing currency.
The ruble exchange rate against the dollar has skyrocketed.
But only Russian domestic investors and those from so-called friendly jurisdictions (i.e., regions that have not imposed any sanctions on Russia, such as the UAE and Kazakhstan) can trade these assets.
Before the outbreak of the Russia-Ukraine conflict, foreign investors held about $150 billion in Russian stocks and government bonds, which were significant components of most emerging market indices. Since then, most of the funds have been withdrawn or trapped in non-resident bank accounts in Russia.
'As we write down the Russian stocks we hold to nearly zero, the situation is quite brutal,' said Alexandra Morris, investment director at Skagen. 'We still receive quite significant dividends from the Russian stocks we hold, so I guess this counts as a free option for our fund.'
She expressed that she has little hope of accessing these funds in the near future and added, 'I won't have too many expectations for it in the short term.'
Another fund manager, Gyorgy Palfi, who previously managed a Russia-focused fund that is now frozen, is currently the stock chief at Hungary's VIG Asset Management, buying bank stocks including Raiffeisen Bank and OTP Bank, both of which continue to operate in Russia.
Take Raiffeisen Bank, which has been trying to sell its Russian subsidiary for years and has accumulated more than 4 billion euros ($4.2 billion) in excess stranded funds. 'If Raiffeisen Bank could extract those profits, it would be a very substantial amount of money,' Palfi said.
Trading assets related to Russia may exist in a legal gray area. Paul McNamara, a portfolio manager at GAM UK Ltd., stated that he received messages from bankers offering ruble bonds issued before the war by institutions like the European Bank for Reconstruction and Development and the World Bank, along with price consultations.
He said that these securities are not subject to sanctions, but investing in them requires communication with the compliance department, and clients may object. So far, he has kept his distance from this.
For Kieran Curtis, a fixed income fund manager at Abrdn, the Kazakhstan tenge is a relatively attractive trade that will benefit from the Russia-Ukraine peace negotiations. He is skeptical that Congress will lift the sanctions but noted that given Trump's stance on Russia, 'it's not entirely impossible,' he said.
'This will be a very complex decision,' he said. 'If sanctions are lifted and Russian assets are reintegrated into indices, they will carry significant weight. This will force all fund managers to take this decision extremely seriously.'
This article is reposted from: Jin Shi Data