Russia is trying to stem the investor rush as sanctions hurt the economy


Austrian Raiffeisen bank considers exit from Russia; Visa, Mastercard block many in sanctions-hit country

Austrian Raiffeisen bank considers exit from Russia; Visa, Mastercard block many in sanctions-hit country

Russia said on Tuesday it is temporarily halting foreigners trying to leave Russian assets, slowing an accelerating investor exodus sparked by crippling Western sanctions imposed over Ukraine’s invasion.

Russian assets went into freefall on Tuesday, as the London-listed ishares MSCI Russia ETF plunged 50% to hit a new record low, and Russia’s largest lender, Sberbank, fell 21% as investors raced to exit.

Big money managers, including hedge fund Man Group and British wealth manager abrdn, have reduced their positions in Russia even as the ruble has fallen to record lows and trading in its bonds has been frozen.

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

“The big question is, where are buyers showing up?”

Austria’s Raiffeisen Bank International is also considering leaving Russia, two people with knowledge of the matter told Reuters, a move that would make it the first European bank since the country’s invasion of Ukraine.

Russian Prime Minister Mikhail Mishustin announced that the country would temporarily bar foreign investors from selling Russian assets to ensure they make an informed decision, but gave no details.

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

UK wealth manager Liontrust has halted trading in its Russia fund, while prices for some of the most popular Russia-focused exchange-traded funds have traded at a discount to their net asset value.

Ratings 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, a spokesman said via email.

will not invest

In a matter of weeks, Russia has gone from a lucrative bet on rising oil prices to an uninvestable market with a central bank paralyzed by sanctions, big banks locked out of the international payments system, and capital controls choking off cash flows.

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

Shares in some European banks remained under pressure after sharp falls on Monday on lender exposure to Russia, and the European banking sector fell 3% on Tuesday.

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

Shares of Raiffeisen fell 11.3% in the early afternoon after falling 14% on Monday. Shares in Italy’s UniCredit fell 2.5% after falling 9.5% on Monday.

The European Central Bank has placed banks with close ties to Russia, such as Raiffeisen and the European arm of VTB, under close scrutiny after the West imposed sweeping financial sanctions that have already sidelined one Russian lender, two sources told Reuters.

No quick fix

Tuesday’s swings in stock prices and investor comment came as Russia faced increasing isolation from its invasion of Ukraine and local resistance denied President Vladimir Putin crucial early gains despite heavy shelling and a huge military convoy outside of Kyiv.

In recent days, the United States, Britain, Europe and Canada have announced a slew of new sanctions – including blocking certain Russian lenders from accessing the international payments system SWIFT.

In response, the London Stock Exchange said on Tuesday it would halt trading in two Global Depository Receipts (GDRs) for VTB Bank after Britain’s financial regulator suspended them in response to sanctions.

The German stock exchange operator expanded the securities it would no longer trade to include bonds issued by Russia.

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

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

Deutsche Bank boss Christian Sewing told the Bild newspaper that it was wrong to assume that the crisis in Ukraine would be resolved quickly after Russian banks were excluded from the SWIFT system.

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

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