Russia is seeking to stop pushing investors as sanctions hit the economy

File of the silhouette of the banking district in Frankfurt, September 18, 2014 REUTERS / Kai Pfaffenbach

LONDON, March 1 – Russia said on Tuesday it was placing temporary restrictions on foreigners seeking to exit Russian assets, putting an end to the accelerating exodus of investors caused by crippling Western sanctions over Ukraine’s invasion.

Russia’s assets fell to a free fall on Tuesday, with London-based MSCI Russia ETF (CSRU.L) down 50% to reach a new record low and Russia’s largest lender, Sberbank, down 21%. as investors competed to exit.

Major money managers, including hedge fund Man Group (EMG.L) and British asset manager abrdn (ABDN.L), are cutting back in Russia, even as the ruble fell to a record low and bond trading froze.

“There is certainly a desire on the part of asset managers and benchmarking providers to get rid of Russia’s exposure in their portfolios and indices,” said Caspar Henze, senior portfolio manager at Bluebay Asset Management in London.

“The big question is where do buyers come from?”

Austria’s Raiffeisen Bank International (RBIV.VI) is also looking to leave Russia, two people familiar with the matter told Reuters, making it the first European bank to do so since the country’s invasion of Ukraine. Read more

Russian Prime Minister Mikhail Mishustin said the country would temporarily suspend foreign investors from selling Russian assets to ensure they make an informed decision, but gave no details. Read more

Moscow’s move to impose capital controls means billions of dollars in securities held by foreigners in Russia are at risk of falling into a trap.

British asset manager Liontrust has stopped trading in its Russian fund, while the prices of some of Russia’s most popular exchange-traded funds have traded at a discount to their net asset value (CSRU.L).

The rating agency Fitch has identified 11 Russia-focused funds that have been suspended, with total assets under management of 4.4 billion euros ($ 4.92 billion) at the end of January, an email spokesman said. Read more

HE WILL NOT INVEST

In a matter of weeks, Russia has gone from a lucrative bet to rising oil prices in a market that cannot be invested, with a central bank hampered by sanctions, large banks cut off from the international payment system and capital controls cut off cash flows.

Visa Inc (VN) and Mastercard Inc have blocked a number of Russian financial institutions from their networks, and German market regulator BaFin has said it is closely monitoring Russia’s VTB Bank’s European subsidiary (VTBR.MM), which no longer accepts new customers.

Shares of some European banks remained under pressure after sharp declines on Monday due to creditors’ exposure to Russia and the European banking sector (.SX7P) fell 3% on Tuesday.

Asset manager abrdn has about two billion pounds of client money invested in Russia and Belarus and is cutting back, said CEO Stephen Byrd. Read more

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

Man Group has cut its investment in Russia in recent weeks and now has “minor” exposure to Russia and Ukraine in its entire portfolio, its chief financial officer Antoine Forter told Reuters on Tuesday. Read more

Shares of Raiffeisen (RBIV.VI) fell 11.3% early in the afternoon after falling 14% on Monday. Shares of Italian UniCredit (CRDI.MI) fell 2.5% after falling 9.5% on Monday.

The European Central Bank has put banks with close ties to Russia, such as Raiffeisen and VTB’s European division, under close scrutiny following extensive financial sanctions from the West that have already pushed a Russian lender over the edge, two sources told Reuters. Read more

THERE IS NO QUICK SOLUTION

Fluctuations in stock prices on Tuesday and investor comments came as Russia faced growing 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. Read more

In recent days, the United States, Britain, Europe and Canada have announced a number of new sanctions, including blocking some Russian creditors’ access to the international payment system SWIFT. Read more

In response, the London Stock Exchange said on Tuesday that it would suspend trading in two global depositary receipts (GDRs) for VTB Bank after the British financial regulator stopped them in response to sanctions. Read more

The German stock exchange operator has expanded securities it will no longer trade to bonds issued by Russia. Read more

India’s largest creditor will not process transactions involving Russian entities that are subject to international sanctions imposed on Russia since its invasion of Ukraine, according to a letter seen by Reuters and people familiar with the matter. Read more

Amid wild swings in bank stocks, bankers have tried to reassure investors and the public that they are well-capitalized and that their footprint in Russia is relatively small.

Deutsche Bank Chief Executive Officer (DBKGn.DE) Christian Shuwing told Bild that it would be wrong to take a quick solution to the crisis in Ukraine following the exclusion of Russian banks from the SWIFT payment system.

“That would be the wrong expectation,” Sewing said.

Additional reports by Frank Siebelt, Hugh Jones and Madeleine Chambers; Writing by Tom Sims and Saikat Chatherjee; Edited by Edmund Blair, Carmel Crimins and Susan Fenton

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