That said, the ranks of retail investors in Russia, while relatively small, have grown. Jacob Grapengiesser, a partner at Swedish investment firm East Capital, was based in Russia until recently. Before the war, he says, his wife’s younger colleagues asked him for stock picks after they found out what he was doing for a living. “It’s not something that would have happened just a few years ago,” Grapengiesser said.
But investing in Russian stocks is a much different proposition now. The sanctions are hitting the Russian economy hard, and the measures Moscow is taking in response, including restricting access to foreign currency and raising interest rates, further limit what businesses can do. Investors who select their investments based on environmental, social and governance, or ESG, principles are also reconsidering their exposure to anything Russian.
IHS Markit analysts expect the Russian economy to contract by 11% this year and inflation to more than triple, to over 20%. The country will not fully regain its pre-war size until the 2030s, according to their forecasts.
Russian state-owned companies, which tend to be the largest and most international, are increasingly cut off from foreign markets, especially if their owners are under Western sanctions. S&P Global Market Intelligence recently estimated that an average public company in Russia has a 1 in 5 chance of defaulting on its debt.
Russian companies listed on foreign markets, which continued to trade after the Moscow market closed, saw their value drop to near zero. The fact that companies are worth something in the country but are considered worthless abroad perfectly shows how separated the Russian market has been from the rest of the world.
For some it is an opportunity. East Capital’s Mr Grapengiesser said he was getting “three calls a day” from foreign hedge funds looking to buy his Russian shares at heavily discounted prices. (The company holds hundreds of millions of dollars in Russian stocks across all of its funds.) He’s not interested in selling, and he’s not sure how he would complete the deals anyway, because as a fund held by foreigners, its assets are frozen. .
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