In Market Terms, Russian Spy Spat Pales Compared With Crimea

(Bloomberg) -- A poisoned ex-spy, sweeping diplomatic expulsions, the promise of Russian retribution. And yet the ruble is still set to end the quarter in the green.

A look back at returns on the Russian currency over the past four years shows the latest fallout with the West is doing little to dent investor sentiment so far. The ruble is holding onto a small advance versus the dollar for the past three months, compared with a 14 percent plunge after sanctions were slapped on Russian companies and individuals in 2014 over the country’s role in a conflict in Ukraine.

The resilience this time round can in part be explained by the quarter’s 4.7 percent jump in the price of Brent crude, Russia’s main export, which is helping keep the currency afloat. That wasn’t the case in 2014 when global oil prices began their free-fall. There’s also the fact that investors have been here before and know that international punishments are unlikely to go so far as to curb access to Russian markets.

Russian stocks have recouped some losses from the dip after news about the diplomat expulsions broke on Monday. Ruble bond yields are trading near a four-year low after only a very small uptick earlier in the month. Amundi Asset Management, PineBridge Investments and TCW Group are among investors who say they are still bullish on Russian bonds.

"Unless the U.S. and EU show a willingness to sanction Russian sovereign or quasi-sovereign debt, the markets will mainly focus on Russia’s credit metrics which have improved materially over the past couple of years," said Blaise Antin, head of emerging-market sovereign research at TCW in Los Angeles, which holds Russian bonds.

Here are some more signs investors are taking the tension in their stride:

• Russia’s finance ministry said on Tuesday they may sell a bond in euros this year after receiving interest from German investors
• Amundi Asset Management’s Sergei Strigo says he “doesn’t see any reason” for the rising geopolitical tensions to damp his bullish view on Russian assets
• Britain condemns Putin while its pension funds help finance him
• The diplomatic spat wasn’t enough to deter investors from bidding for almost double the $4 billion of Eurobonds sold by Russia earlier this month

To contact the reporters on this story: Natasha Doff in Moscow at ndoff@bloomberg.net, Lyubov Pronina in Brussels at lpronina@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Alex Nicholson, Cecile Gutscher

©2018 Bloomberg L.P.