Panicking Investors Wonder If U.S. Ire Dooms All Russian Stocks

(Bloomberg) -- Investors caught up in the market carnage around two Russian companies struck by U.S. sanctions are asking if any stock is safe.

A selloff swept across Russian equities and the ruble on Monday after the Treasury Department last week blacklisted United Co. Rusal and En+ Group Plc, two companies owned by metals tycoon Oleg Deripaska. Analysts at Citigroup Inc. warned the move sets a new precedent that could ensnare “any Russian company.”

“Because the reasons for the sanctions aren’t clear, there’s a fear that other big companies might be placed on a similar list,” said Anastasia Levashova, a fund manager at Blackfriars Asset Management Ltd. in London. “There are a lot of unknowns. That’s why the market is panicking.”

One reason investors feel whipsawed is that Rusal was a market favorite after it surged last year amid growing global demand for aluminum. While previous sectoral sanctions have prevented several Russian companies from issuing new debt and equity since 2014, this is the first time that investors are barred from owning and trading the stocks of a major firm.

All but one of the 13 analysts who provided data to Bloomberg had a buy recommendation on the stock until the sanctions order was unveiled. Investors including Pictet Asset Management Ltd and Vanguard Group Inc. recently bought shares in Rusal, according to public-filings data compiled by Bloomberg. Capital World Investors, part of Capital Group, bought a stake of EN+ when the company raised $1.5 billion in an initial public offering last year.

BCS Global Markets and Aton LLC are among brokerages that suspended coverage of the affected stocks.

The air of unpredictability may be exactly what the U.S. was trying to create through the latest penalties, said Tim Ash, a senior emerging-market strategist at BlueBay Asset Management LLP in London. By failing to give any clarity about who they will target next, American officials are sending “a message that any Russian oligarch should be nervous unless they go out of their way to break or distance themselves” from President Vladimir Putin, Ash said.

The fact that Deripaska and Viktor Vekselberg were singled out by the U.S. also leaves the rest of the stock market vulnerable since the two billionaires are among the “Yeltsin oligarchs” who made much of their fortunes before Putin came to power, according to Citigroup. Putin succeeded Boris Yeltsin in late 1999.

If they are targeted, “it reasons that any Russian company can be included,” Barry Ehrlich, analyst at Citigroup in Moscow, said in a research note. “Investors may raise their risk weighting on Russian equities and other assets, as a result,” which could lead “to a derating across the board.”

While Russia has weathered several rounds of Western sanctions, the latest salvo “exhibited a level of severity that we haven’t seen before,” according to Gary Greenberg, London-based head of global emerging markets at Hermes Investment Management.

“Investors started to ask the question about what happens next,” he said. “It’s not beyond the realm of possibility that further tougher sanctions are put into place as the retaliation from Russia becomes stronger. You just don’t know where these things are going to end up.”

To contact the reporter on this story: Natasha Doff in Moscow at ndoff@bloomberg.net.

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

©2018 Bloomberg L.P.