Not only the yuan: how to diversify a portfolio of currencies after sanctions against Moscow Exchange
- Elena Ruzleva Forbes Editorial
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Photo Getty ImagesAmerican sanctions, which the Moscow Exchange and its subsidiaries fell under, led to a complete stop of exchange trading in the dollar and euro. How did this affect the possibilities of currency diversification for private investors and protection from ruble devaluation?
Moscow Exchange came under US blocking sanctions on June 12, Along with it, the National Clearing Center came under restrictions. This led to a halt in exchange trading in the dollar and euro, as well as the Hong Kong dollar. However, on the trading platform you can still buy the yuan and the currencies of those countries that did not impose sanctions against Russia.
US blocking sanctions had almost no impact on foreign exchange opportunities portfolio diversification, which was seriously limited before, analysts surveyed by Forbes agree. “Brokers have been warning about risks for a long time, and many even introduced commissions for storing currency. In this situation, it is difficult to imagine that anyone actually bought and held dollars and euros in brokerage accounts,” Go Invest analysts write in a commentary.
General Invest portfolio manager Dimitry Rezepov reminds that The over-the-counter market already accounts for more than 50% of currency trading, and the sanctions scenario has long been discussed. “Most foreign exchange instruments are settlement instruments, and quasi-currency instruments are tied to the Bank of Russia exchange rate, so we can say that everyone was ready,” he believes.
This opinion is shared by the project manager of Veles Capital Investment Company » Valentina Savenkova. She clarifies that all the most significant restrictions on portfolio diversification appeared two years ago, after the first wave of sanctions in response to the “special operation”*.
What instruments do Russian investors have left?
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Replacement bonds
These securities appeared on the Russian market to replace Eurobonds of domestic companies. They are tied to the foreign currency exchange rate, but payments on such securities are made in rubles. Replacement bonds are available in dollars, euros, pounds and Swiss francs. Such issues have high liquidity.
Nikolay Ryaskov, Managing Director for Investments at PSB Management Company, reminds that replacement bonds involve settlements in rubles and do not carry risks associated with sanctions; they are tied to the exchange rate of the relevant currencies. According to him, Gazprom's dollar bonds maturing in 2037, when purchased, now provide a yield of about 7.5% per annum.
At the same time, there are still risks for replacement bonds, says Dmitry Savchenko, investment consultant at FG Finam. And this risk is the formation of the euro and dollar exchange rate. “[Bonds] are tied to the Central Bank rate, but in the current conditions, its pricing is not as transparent as before. At the same time, investors can “move” quotes with emotional purchases/sales of bonds in an attempt to fix the rate they need,” he notes.
On average, this instrument can provide 7-11% yield, says Dmitry Rezepov from General Invest.
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Yuan bonds
In terms of profitability, this instrument is inferior to replacement bonds, but yields may increase due to high demand for yuan liquidity, says Aisha Kubezova, director of electronic markets at Sberbank. In general, these bonds are similar in meaning to replacement bonds, and payments on them can be in both yuan and rubles at the investor’s request, says Dimitry Rezepov.
“Last year, these bonds were less interesting from an investment point of view due to high demand and low yield. The replaced bonds looked much more attractive. Profitability over the year increased by 2.5-3 percentage points, and now you can pay attention to this market,” says Rezepov.
At the same time, about 70% of the yuan bond segment is now accounted for by three issuers – Rosneft, Rusal and Norilsk Nickel “, says Rezepov. But the number of issuers will increase. The potential return in foreign currency of such bonds is 7-10% per annum, he adds.
Yuan
Another option to diversify your portfolio is to buy yuan on stock exchange The Chinese currency has greater transparency in exchange rate formation, says Dmitry Savchenko from Finam. This currency is also liquid, which means you can open and close a position on it at any time.
In addition, you can buy cash yuan and store your savings in it, as before in dollars or euros. Many banks provide this opportunity, for example Sovcombank, VTB or Sberbank. In addition, banks are opening yuan deposits.
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Futures
Also investors for portfolio diversification and hedging currency risks may pay attention to more complex instruments, says Valentina Savenkova from Veles Capital. For example, futures and options on currencies. They are non-delivery. All payments are made in rubles and these instruments are not affected by US sanctions.
These instruments are suitable for protecting savings: an investor may be afraid of ruble devaluation and open a position in derivatives to play on this weakening. And for diversification, settlement futures on foreign indices are suitable, says Savenkova from Veles Capital. On the Moscow Exchange there are ruble futures for foreign exchange-traded funds that repeat the movements of foreign stock indices — SP500, Nasdaq, EuroStoxx, DAX, Hang Seng. “The dynamics are fully consistent with the dynamics of the index, calculations are carried out in rubles, there are no infrastructure risks,” Savenkova lists the advantages.
Risks
Nevertheless, today it is better for investors to wait and see how the new over-the-counter currency model works, says Lyudmila Rokotyanskaya, an expert on the stock market at BCS World of Investments. “For now, it is better not to make any transactions with foreign exchange instruments – to observe the dynamics of the official rates of the Central Bank, the movements of the exchange yuan, and the rate in exchange offices. It will take some time before the situation settles down,” she sums up.
*According to the requirement of Roskomnadzor, when preparing materials about a special operation in eastern Ukraine, all Russian media are required to use information only from official sources of the Russian Federation. We cannot publish materials in which the ongoing operation is called an “attack,” “invasion,” or “declaration of war,” unless this is a direct quote (Article 57 of the Federal Law on the Media). In case of violation of the requirement, the media may be fined in the amount of 5 million rubles, and the publication may also be blocked.
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Elena Ruzleva
Forbes editorial staff
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