Bob Dylan once sang, “Something is happening here, but you don’t know what it is, do you, Mr. Jones?” That’s what it kind of feels like today. There’s something going on behind the scenes in Russia –something we’re not privy to. On the heels of new U.S. sanctions and a chemical weapon attack in Syria, the Russian market fell 10% on April 9th, a much larger reaction than expected.
Given the fact that Mr.Oleg Deripaska (who is closely associated with Mr. Paul Manafort) and the companies he controlswere the primary targets, one might draw a conclusion that there’s a political dimension to this.
If the intent was to hurt Russia economically, sanctioning companies such as Gazprom and Sberbank would have had a much more profound impact.
Our sources in Moscow suggest a similar view. The new risk is that the White House is now actively involved with day-to-day Russian policy and everyone is uncertain as to what Mr. Trump might tweet tomorrow. In short, we don’t think the U.S. is exercising the “nuclear option” of trying to tank the Russian economy. While it will cause pain in certain areas, we do not think this action will have a profound impact on the Russian economy.
Within the Russian market, Gazprom fell 8% while Sberbank fell almost 22%. As the supplier of 30% of Europe’s natural gas, Gazprom is unlikely to be sanctioned or suffer significant negative effects. On the other hand, we believe Sberbank’s dramatic fall reflects the fact that it is the most foreignowned and most liquid Russian stock (the GDR trades an average of $100 million daily in London alone) and was hard hit for liquidity, rather than for fundamental reasons. Only 3% of Sberbank’s assets were exposed to sanctioned companies. Furthermore, it is Russia’s largest bank, with 20,000 branches and 65% of the country’s deposits.