In the context of the collapse of the Russian economy its stock market is cryogenically frozen and its bonds are close to default, global investors will suffer big losses.
Why is it important: For decades, Russian investment has been the cornerstone of so-called “emerging markets” investing, a marketing rubric of the financial world that has enabled the free flow of global investments that have defined the post-Cold War era.
- Russia was the star of BRICS, a rubric coined by analysts at Goldman Sachs that referred to the fast-growing emerging markets that have been the favorites of investors over the past two decades.
- BRICS = Brazil, Russia, India, China, South Africa.
Game state: It is difficult to estimate how massive the losses could be.
- Goldman analysts have calculated that foreigners hold about $70 billion worth of Russian government bonds.
- A Brookings Institution report released last month said about $200 billion worth of Russian shares are held by foreigners, including $68 billion in the US.
Lead news: In recent days, major financial players have revealed – or the press has disclosed to them – the risks of such investments, which could lead to losses in the billions in the event of massive defaults on Russian debt.
- BlackRock, the world’s largest asset manager, lost about $17 billion in Russian securities in the invasion, the FT reported Friday.
- Bond trading giant Pimco could lose up to $2.6 billion if Russia fails to pay its sovereign debt after the asset manager bet big on a default, according to the FT.
- Italy’s second-largest bank, Unicredit, said it could lose $8 billion if it had to write down its business in Russia entirely – that is, render it worthless.
- French banking giant BNP Paribas said its total investment in Russia and Ukraine is $3 billion.
- The German Deutsche Bank is at risk of about $3 billion.
- Credit Suisse acknowledged a $1.7 billion risk.
Yes, but: There will almost certainly be new losses.
- French bank Societe Generale said it had assets of approximately 18 billion euros (nearly $20 billion) as of the end of 2021.
- Citibank said last week that its total risk in Russia was nearly $10 billion.
Intrigue: These are just losses that we clearly foresee. But the sharp market moves triggered by the Russian invasion and massive sanctions in response have led to sharp and more unexpected losses elsewhere.
- In China, a startling spike in nickel prices – partly due to concerns about access to supplies from Russia, the metal’s largest producer – has shaken the empire of Xiang Guanda, the billionaire founder of one of China’s largest stainless steel producers. , Qingshan Holding Group.
Meanwhile: Western corporations will suffer losses from foreign direct investment – that is, business investment in Russia – as they rush out of the market.
Essence: What a mess. The country’s economic collapse — along with its brutal invasion of Ukraine that placed it on par with North Korea — will likely be seen by historians as the end of the latest chapter of financial globalization.
Editor’s Note: This story has been updated to reflect the latest news of BlackRock’s Russia-related losses.