You are here

Avoid Russian assets: Wall St banks


SOME of Wall Street's biggest banks are warning investors to steer clear of Russian assets after the ruble's worst week since the 2015 oil crash amid mounting risks of crippling sanctions from the US.

Morgan Stanley turned bearish and UBS Group AG closed its recommendation to buy the Russian currency, with analysts at both banks saying in notes published on Thursday that the risks outweigh the rewards for owning the ruble. Diana Amoa, a money manager at JPMorgan Asset Management, puts the likelihood of curbs on Russian sovereign debt at as high as 50 per cent.

The ruble retreated more than 6 per cent last week as contagion from the crisis in Turkey compounded tensions with the US.

A fresh batch of sanctions introduced last week added to mounting concerns that the US is about to start ratcheting up the severity of its restrictions against Russia. The worst-case scenario is a bill introduced in Washington recently that seeks penalties on banking transactions and new Russian sovereign debt as punishment for meddling in the 2016 presidential elections.

Ms Amoa said she has reduced holdings of Russian assets because the tail risk from potential sanctions is "just too large". High foreign ownership of Russian sovereign debt means that sanctions would have a big impact on bond yields, she said. Foreigners held about 28 per cent of the nation's outstanding ruble debt as at July 1, according to central bank data.

Both Republicans and Democrats in Congress have called for tough measures against Russia in the wake of last month's summit between President Donald Trump and his counterpart Vladimir Putin. Still, the outlook for passage of the bill submitted remains uncertain, particularly since the US Treasury warned that sanctioning sovereign debt could cause instability in global markets.

The US is more likely to apply sanctions selectively to avoid "collateral damage" than to pass the bill in full, according to Tilmann Kolb, an analyst at UBS. Pressure on Russia, however, is only likely to rise further in the near term, he said in a note.

No decision can be taken on the bill until the House returns from summer recess next month, leaving a cloud of uncertainty over markets until then. Analysts at Morgan Stanley said that could leave the Russian Finance Ministry struggling to find enough buyers for the equivalent of US$3 billion it can still borrow this year, of which US$800 million would be swapped for sovereign bonds that are outstanding. BLOOMBERG

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to