Russia puts the brakes on investor exodus as assets crash

London — Russia said it is placing temporary curbs on foreigners seeking to exit Russian assets on Tuesday, putting the brakes on an accelerating investor exodus driven by crippling Western sanctions imposed over the invasion of Ukraine.

Russian assets went into free fall on Tuesday with London-listed iShares MSCI Russia ETF falling 50% to hit a fresh record low and Russia’s biggest lender, Sberbank, slumping 21% as investors raced for the exit.

Major money managers, including hedge fund Man Group and British asset manager abrdn, have been cutting their positions in Russia even as the rouble slumped to a record low and trading froze on its bonds.

“There is certainly a willingness from asset managers and benchmark providers to get rid of Russia exposure in their portfolios and indexes,” said Kaspar Hense, a senior portfolio manager at Bluebay Asset Management in London.

“The big question is where do buyers turn up?”

Moscow’s move to impose capital controls mean that billions of dollars worth of securities held by foreigners in Russia are at risk of being trapped.

British asset manager Liontrust suspended dealing in its Russia fund while the prices of some of the most popular Russia-focused exchange traded funds were trading at a discount to their net asset values.

Ratings agency Fitch has identified 11 Russia-focused funds that have been suspended, with total assets under management of €4.4bn at end-January, a spokesperson said by email.

Closely monitoring

In a matter of weeks, Russia has turned from a lucrative bet on surging oil prices to an uninvestable market with a central bank hamstrung by sanctions, major banks shut out of the international payments system and capital controls choking off money flows.

Visa and Mastercard have blocked multiple Russian financial institutions from their networks and Germany’s market regulator BaFin said that it is closely monitoring the European arm of Russia’s VTB Bank, which is no longer accepting new clients.

Shares in some European banks remained under pressure after heavy declines on Monday because of lenders’ exposure to Russia. The sector remained volatile as Moscow started day six of its invasion.

Asset manager abrdn has about £2bn of client money invested in Russia and Belarus, and has been cutting its positions, CEO Stephen Bird said.

“We will not invest in Russia and Belarus for the foreseeable future,” Bird said.

Man Group cut its investments in Russia in recent weeks and now has “negligible” exposure to Russia and Ukraine across its portfolio, its CFO Antoine Forterre told Reuters on Tuesday.

Shares of Austria’s Raiffeisen Bank International were down 6% in late morning, after sliding 14% on Monday. Shares of Italy’s UniCredit fell 1%, after Monday’s 9.5% fall.

Increasing isolation

The European Central Bank has put banks with close ties to Russia, such as Raiffeisen and the European arm of VTB, under close observation after sweeping financial sanctions by the West that have already pushed one Russian lender over the edge, two sources said.

Tuesday’s share price swings and investor comments came as Russia faced increasing isolation over its invasion of Ukraine, with resistance on the ground denying President Vladimir Putin decisive early gains despite heavy shelling and a huge military convoy outside Kyiv.

Shares of leading banks fell with the European banking sector slid 1.9% on Tuesday to a fresh 2½ month low.

In recent days, the US, Britain, Europe and Canada announced a raft of new sanctions — including blocking certain Russian lenders’ access to the SWIFT international payment system.

In response, the London Stock Exchange said on Tuesday it will stop trading in two global depository receipts (GDRs) for VTB Bank after Britain’s financial regulator suspended them in response to sanctions.

India’s top lender will not process any transactions involving Russian entities subject to international sanctions imposed on Russia after its invasion of Ukraine, according to a letter seen by Reuters and people familiar with the matter.

Amid wild swings in bank shares, bankers have sought to reassure investors and the public, saying they are well capitalised and that their footprints in Russia are relatively small. Some like BlackRock doubled its stake in Polymetal.

Deutsche Bank CEO Christian Sewing told the Bild newspaper that it will be wrong to assume a quick resolution to the crisis in Ukraine after the exclusion of Russian banks from the SWIFT payment system. “That would be the wrong expectation,” Sewing said.

Reuters