Hedge Funds Bullish on Russia


Despite geopolitical risks and tension in Ukraine, hedge funds put billions in Russian stocks during the first quarter of 2014. Among the largest buyers are Renaissance Technologies and Citadel Advisors, two funds located in the United States.

Hedge funds located in the U.S., as well as those based internationally, have also increased their exposure to stocks in East and Southeast Asia with Chinese, Malaysian and Indonesian stocks making up over 20 percent more of institutional holdings during the first quarter of this year.

Russian companies that are targets of investment, among many others, are Telesystems (NYSE: MBT) and VipelCom (NYSE: VP). Both are large telecommunications companies with major operations in Ukraine and Russia that are listed on the New York Stock Exchange.

Many hedge fund managers believe that Russian equities had attractive valuations before the crisis in Ukraine, and have now dropped even further below reasonable levels. “The markets in Russia and Ukraine are deeper than other countries where there’s been political tension and also extraordinarily cheap.” said Peter Rup, the chief investment officer at Artemis Wealth Advisors LLC which is located in New York and manages the investment US$800 million.

Although Russian stocks and the ruble have recovered from their recent lows, hedge funds that previously had a large allocation toward them have suffered heavy losses. Prosperity Capital Management, which is based in Moscow and one of Russia’s biggest hedge fund operators, has lost 16.2% on their Russian Prosperity Fund.

Despite this, Prosperity does not yet plan on reducing its exposure to Russian stocks. Alexander Branis, the company’s chief investment advisor, believes that the selloff may have been too much and does not expect any further sanctions, and a subsequent decline in the stock market, unless Moscow decides to advance its military into Ukraine.

Sanctions imposed on Russia so far include travel bans and asset freezes against some of the country’s senior politicians and restrictions made from U.S. credit card companies Visa and Mastercard. Further sanctions were threatened by both Europe and the United States if Russia moves its troops to seize more of Ukraine.

However, news has come out from the Kremlin stating that they have pulled troops out from the border of Russia and Ukraine, very likely reducing the possibility of an increased amount of conflict between the two countries.

Russia’s main indexes, RTSI and MICEX, are both down over 10% since the beginning of the year.


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