Nine months on from Russia’s invasion of Ukraine and the fate of many Russia-focused stocks and funds remain up in the air.

High profile names have fallen by the wayside – notably Russian gold miner Petropavlovsk.

Prevented from selling its gold due to sanctions, the company entered administration and exited the UK stock market in July leaving shareholders with nothing. Real estate group Raven Property also delisted in the weeks after the conflict started.

Many holders of other Russian investments have been left in limbo as the war has raged on, with no sign of an end to the conflict in sight.

IMPACT ON RUSSIAN INVESTMENTS

While there were always risks attached to investing in an emerging market like Russia, particularly one so exposed to geopolitical ructions, Moscow-listed shares traded on cheap valuations heading into 2022 when there was chatter about a build-up in military activity close to Ukraine.

Many observers doubted Russian premier Vladimir Putin would follow through on his threat to invade the country, but it happened with devastating effect on 24 February.

Firms with links to Russia are an increasingly endangered species on the London stock market but there is the odd survivor. Unlike Petropavlovsk, fellow precious metals miner Polymetal (POLY) continues to operate.

In a trading update on 3 November the company unveiled robust production figures and maintained cost guidance. This is expected to translate into meaningful cash flow in the fourth quarter of 2022 and help the company pay down net debt from $2.8 billion at the end of September to $2.3 billion by the end of the year.

Polymetal has been helped by its holdings in Kazakhstan, representing around a third of the portfolio, which at least provided some diversification from Russian risks.

Investment bank Berenberg notes that during September Polymetal began to ‘meaningfully unwind’ its accumulated inventory after completing the restructuring of its sales channels away from the West and towards Asia.

The shares are still down more than 80% year-to-date at 223p but have at least recovered appreciably from their lows.

The position of Russian steel firm Evraz (EVR), part-owned by Russian oligarch Roman Abramovich, is more perilous with the company recently seeing its auditor EY quit in the face of continuing sanctions and its shares remain suspended.

The sanctions reflect the firm’s central position in the Russian steel industry, and the support this provides to the Russian military. Sanctions were also recently extended to two Evraz shareholders, Alexander Abramov and Alexander Frolov, both associates of Abramovich.

WHAT ABOUT RUSSIAN GDRS?

Like Evraz those Russian GDRs (global depositary receipts) which are still listed in the UK are suspended. 

A GDR is a certificate that represents stock in an overseas company. A bank buys shares, holds them in a depositary, and sells the receipt to an investor, typically in another currency. Generally, each GDR will contain more than one share per depositary receipt.

Many fund managers who hold these instruments have written their value down to zero.

The managers of Liontrust Russia (B86WB79) have taken a different approach, valuing them at their last traded prices. In a recent update for holders of the fund, dealing in which is currently suspended, Liontrust noted it was ‘in the process of converting some of these holdings into the underlying local shares which are trading in Moscow, as some of these depositary programs will be discontinued and the shares delisted from Western markets.’

This followed new Russian legislation banning some Russian firms from listing in ‘unfriendly’ countries. Rosneft, Gazprom and Severstal are among those to have delisted their GDRs from the London market. ‘As the majority of the portfolio is already held in local Russian shares there is no significant impact on the fund,’ Liontrust concluded.

WHY RUSSIAN FUNDS HAVE BEEN SUSPENDED

Liontrust Russia is one of several Russian funds which have suspended dealing, with HSBC GIF Russia Equity and Pictet Russian Equities (B8JBCF8) in the same boat. These funds have also temporarily waived their annual management charge and administration fees.

Russia-focused exchange-traded funds have been suspended and some liquidated as the indices they track are discontinued.

The actively managed funds are left waiting on a reopening of the Moscow stock market to all overseas investors, not just those from countries which have not imposed sanctions on Russia. Though as Liontrust notes, ‘these may not be the only factors required to unsuspend the fund’.

Thanks to enjoying a different structure from open-ended funds, the one specialist Russian investment trust JPMorgan Russian Securities (JRS) has continued to trade.

However, as Shares reported, the trust plans to broaden its mandate to include other emerging economies in Europe as well as Africa and the Middle East. A meeting will be held on 23 November to collect shareholder votes on the proposed changes.

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