Russia investors set for big losses

With Russia’s economy collapsing, its stock market cryogenically frozen and its bonds near default, global investors are set to endure major losses.

Why it matters: For decades, Russian investments were a cornerstone of so-called “emerging market” investing, the financial world’s marketing rubric that helped encourage the free-flowing global investments that helped define the post-Cold War era.

  • Russia was a star of the “BRICS” – a rubric coined by Goldman Sachs analysts that stood for the fast-growing emerging market economies that were investor favorites over the last two decades.
  • BRICS = Brazil, Russia, India, China, South Africa.

State of play: It’s difficult to estimate how widespread the losses might be.

  • Goldman analysts estimate that there are roughly $ 70 billion worth of Russian government bonds held by foreigners.
  • A report from the Brookings Institution released last month said there were roughly $ 200 billion worth of Russian stocks owned by foreigners – including $ 68 billion in the US

Driving the news: In recent days, major financial players have disclosed – or had the press disclose for them – exposures to such investments that may cause billions in losses in the case of broad-based Russian debt defaults.

  • BlackRock, the world’s largest asset manager, has lost roughly $ 17 billion on Russian securities as a result of the invasion, the FT reported on Friday.
  • Bond-trading giant Pimco could lose up to $ 2.6 billion if Russia fails to make its sovereign debt payments, after the asset manager bet big against a default, the FT reports.
  • Italy’s second largest bank, Unicredit, said it could lose $ 8 billion if it has to fully write off – that is, value as worthless – its Russia business.
  • French banking giant BNP Paribas said it has a combined $ 3 billion in exposure to Russia and Ukraine.
  • Germany’s Deutsche Bank is exposed to about $ 3 billion.
  • Credit Suisse acknowledged $ 1.7 billion in exposure.

Yes, but: More losses are almost sure to come.

  • French bank Societe Generale has said that by the end of 2021, it had roughly € 18 billion (nearly $ 20 billion) worth of exposure.
  • Last week, Citibank said it had a nearly $ 10 billion total exposure to Russia.

The intrigue: Those are just the losses we can obviously see coming. But violent market moves triggered by the Russian invasion – and the massive sanctions in response – have generated steep, and more unexpected, losses elsewhere.

  • In China, an astounding surge in the price of nickel – in part due to worries about access to supplies from Russia, a top producer of the metal – rocked the empire of Xiang Guangda, the billionaire founder of one of China’s largest producers of stainless steel , Tsingshan Holding Group.

Meanwhile: Western corporations will incur losses on foreign direct investments – that is, business investments in Russia – as they rush to exit the market.

The bottom line: What a mess. The country’s economic meltdown – along with its brutal invasion of Ukraine that has put it in a similar box to North Korea – will likely be seen by historians as the end of the most recent chapter of financial globalization.

Editor’s note: This story has been updated to reflect breaking news about BlackRock’s Russia-related losses.

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