Report: Russia assets breach sanctions as Putin comes in from cold

MOSCOW, Nov 18 (PRIME) -- An easing of tensions between Vladimir Putin, Europe and the U.S. is prompting investors to take a fresh look at Russian assets, Bloomberg reported Wednesday.

Swedbank Robur in Stockholm bought shares in state-owned Russian companies and NN Investment Partners in The Hague said it was reconsidering its underweight stance on stocks after the Group of 20 summit brought Russia closer to an alliance with the U.S. in the fight against terrorism. Russian stocks rallied the most worldwide on Tuesday after Zambia and bonds gained on speculation the rapprochement would lead to an easing of sanctions over the Ukraine conflict.

“Russia is no longer seen as a villain like a year ago," said Elena Loven, who is adding "liquid and cheap" stocks to the 1 billion-euro (U.S. $1.07 billion) portfolio she helps manage at Swedbank Robur. "The political risk that was priced into Russian assets is declining. Foreigners, who were mostly underweight Russia, are now buying Russian blue chips in a panic."

Finding common ground with U.S. has the potential to change the stakes for investors who until now have been pricing in the risk that separatist turmoil in Ukraine’s easternmost region could flare up again and prolong sanctions. Standard & Poor’s said Tuesday that an easing of Russia’s isolation would warrant a reconsideration of its junk rating for the country if penalties that have contributed to Russia’s economic slump are lifted.

The U.S. dollar-denominated RTS Index climbed 2% by 3:45 p.m. Wednesday and the premium investors demand to hold Russian government bonds rather than U.S. Treasuries fell eight basis points to 266. The country’s credit risk fell to a two-week low.

Putin ordered Russia’s naval forces in the Mediterranean to work as allies with French warships as his military stepped up attacks against the terrorist group on Tuesday.

“I’m warming up to the idea of putting a bit of money back into Russia,” said Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners. “There’s probably a higher likelihood that Putin will have a better relationship with the West for pragmatic reasons and we should see that reflected in asset prices.”

Putin met with his U.S. counterpart Barack Obama on Sunday, November 15 to discuss ways to confront Islamic State after attacks in Paris killed at least 129 people last week, with Obama noting the importance of Russia’s military efforts in Syria. French President Francois Hollande has called on the two sides to end their dispute sparked by Russia’s annexation of Crimea and work together against the group.

‘Very Pragmatic’

Further overtures of a rapprochement came when Putin said on Monday he was prepared to change the payment terms on a $3 billion bond due next month that it bought from Ukraine in December 2013. That’s a U-turn from Russia’s previous stance of demanding repayment in full and on time, or else taking the nation to court.

“It’s a very pragmatic decision,” said Kirill Yankovsky, director of equity sales at Otkritie Capital Ltd. in London.

The ruble advanced for the third day on Wednesday, adding 0.3% to 64.928 against the dollar. Brent crude climbed 1.5% to $44.23 a barrel. Oil’s 44% slide in the past 12 months has hobbled Russia’s economy and strained finances, with the government set to register its biggest budget shortfall since 2010.

MICEX Index gained 1.4% to 1,813, heading for a nine-month high. Bonds rose for the second day, pushing the yield on five-year ruble notes 11 basis points lower to 9.95%.

“The market thinks that if Russia and the West reach a deal on Ukraine and unite on Syria, this may lead to the softening or lifting of sanctions," said Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow, who bought stocks last week when the index was in the midst of a six-day slump. “Since the situation with the Russian economy is quite weak and oil is tumbling, Putin has realized that it’s best to de-escalate and improve relations with the West."

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