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Russia will be a ‘very challenging investment story’ for a long time to come, strategist says

People walk past a currency exchange office in central Moscow on Feb. 28, 2022, with zeros on the scoreboard since there are no three-digit sections on it to display the current exchange rate.
Alexander Nemenov | AFP | Getty Images

LONDON — Even if Russia’s invasion of Ukraine is de-escalated, investment in Russian assets will be scarce for a long time to come, according to Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management.

Russian and Ukrainian foreign ministers are meeting in Turkey this week for crunch peace talks as Moscow’s onslaught in Ukraine continues. Russian forces on Wednesday night were accused of bombing a children’s hospital in the besieged city of Mariupol.

The prospect of a de-escalation sent global stock markets skyrocketing on Wednesday and reversed the recent surge in oil and other commodity prices. However, Ash suggested those seeking to buy Russian assets on the cheap had “misread Russia.”

“The story around Russia has changed and the ability of investors to buy Russia over the longer term has also changed,” he told CNBC’s “Squawk Box Europe.”

“The damage to the Russian economy will be long term, so it depends why you are buying it — are you buying it because the Russian economy is going to bounce back? I don’t think it is.”

Russia’s invasion has been met with unprecedented economic sanctions from Western powers aimed at cutting Moscow adrift from the global economy, with the U.S. this week taking the substantial measure of banning imports of Russian oil.

Meanwhile international blue chip companies have withdrawn from their operations in the country en masse and divested from Russian assets.

Since the start of the invasion on Feb. 24, the Russian ruble has sunk to all-time lows, Russian stock markets have been closed down and London-listed shares of Russian companies have lost nearly all of their value.

Ash suggested that it would take a full withdrawal of Russian troops from Ukraine for sanctions to be scaled back at all, but a lot longer for companies to be able to justify re-entering the Russian market.

“I think the West has realized that Russia is this big threat to Western liberal market democracy, so the relationship between the West and Russia is going to remain very, very difficult, and this is also about ESG,” he said, referring to environmental, social and corporate governance.

The attack on the hospital and Putin’s general aggression in Ukraine — with Russian forces also shelling humanitarian corridors and civilian areas, prompting allegations of war crimes — will mean any Russian investment will likely fall foul of the ESG criteria favored by an ever-increasing number of investors.

“It is now very difficult for Western big business to be in Russia. That is the reality, and (Putin) pulling back a bit is not really going to change that,” Ash said.

“So Russia is a very, very challenging investment story for a long time to come, unless we see major political changes in Moscow.”

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