Market Views: How the big Russian divestment is disrupting asset allocation | Asset owners


Countries around the world have imposed a series of economic and other sanctions on Russia after its invasion of Ukraine on February 24, 2022.

They aim to stifle Russia’s access to foreign funding and reserves in the hope that this can end the conflict.

Several Western countries have frozen the assets of the Russian central bank, limiting its ability to access $630 billion of its reserves.

The EU banned Russia from increasing sovereign debt and stopped listing shares of public entities on EU stock exchanges.

Some Russian banks are removed from the SWIFT international payment system, which will affect payments for Russian oil and gas exports and money transfers across the border.

In response, Russia imposed strict capital controls, transfer bans on foreign investors and shut down the local stock exchange.

Asian investor contacted experts to get their opinion on how the sanctions will affect asset allocation strategies.

Responses have been edited for clarity and conciseness.

Michael Kelly, Managing Director, Global Head of Multi-Assets
PineBridge Investments

Michael Kelly

PineBridge Investments

Not surprisingly, equity markets took the brunt of risk aversion sentiment due to Vladimir Putin’s invasion of Ukraine. In the medium term, markets will again focus on the inflationary environment, an environment that constrains all financial assets, but in which equities can return to growth after suffering an initial depreciation.

By contrast, government bonds are likely to languish for the foreseeable future. Although recent geopolitical events have affected European equities the most, we expect this to be temporary and expect European growth prospects to reaffirm over the medium term as rising military spending takes hold and that new energy investments are progressing.

While all emerging market assets are now trading as if they are “guilty until proven guilty”, given the uncertainty caused by Putin’s invasion, local currency bonds in Latin America are holding up. well given this risk-free global context.

Idiosyncratic local conditions – inflation and high rates, albeit reaching record highs, as well as favorable winds for higher commodity prices – are likely to dominate any global macroeconomic or geopolitical pressures, making this exposure a tool for diversifying attractive portfolio. We consider LatAm to be the only region in the world where investors should consider holding longer dated securities.

In the G10 markets, we maintain our short duration stance, expecting central banks to focus more on inflation than growth, particularly in the US where overheated conditions continue.

Harmen Overdijk, Investment Director
Leo Wealth

Harmen Overdijk

Leo Wealth

Whatever happens next, relations between Russia and the West are unlikely to improve anytime soon. As was the case during the first cold war, the two parties will probably reach an agreement allowing the establishment of mutually beneficial arrangements.

The short-term outlook for risk assets has deteriorated, despite the sell-off we’ve already seen. However, over a 12-month horizon, we continue to expect equities to outperform bonds as the global economic recovery maintains momentum.

Although other disadvantages are not unthinkable, it is also impossible to predict what will happen next. Cash may look attractive given the volatility, but the combination of value-eroding inflation and re-entry timing issues makes significant cash allocations problematic.

In this environment, we prefer to remain invested in a diversified global portfolio, which should include an allocation to commodities and precious metals. As the United States is less likely to be affected by energy price spikes, US markets are always the place to be. The same is true for US fixed income, particularly the short-term credit yield space.

Jian Shi Cortesi, Chief Investment Officer, China and Asian Equities
GAM investments

Jian Shi Cortesi

GAM investments

After a dramatic down cycle over the past 12 months, China outperformed at the start of the year as the Federal Reserve began discussing rate hikes as China went through a rate cut cycle. However, the Russian-Ukrainian conflict had a negative impact on global markets and at the end of February China was down 6.7% year-to-date, with a similar picture in Asia.

One of the main effects of the Russian-Ukrainian conflict is the rise in oil prices. This is particularly difficult for an oil importing country like India. In terms of international trade, we don’t expect this to have a major impact because China’s exports to Russia are actually quite small given that Russia’s GDP is about the size of a major province in China. On the other hand, since Russia is boycotted by many countries, it could rely more on trade with China.

The companies in the Asia/China portfolios have very limited exposure to Russia. We are not currently making any tactical changes. The current situation reinforces our view that rising oil prices and potential supply disruptions will further incentivize many countries to move forward with renewables. Asia and China are leaders in many renewable fields such as solar, wind, electric vehicles and batteries. We are constantly looking to increase our exposure in these areas at attractive prices.

Andrew Zurawski, Associate Director
Willis Towers Watson

Andrew Zurawski


I would be surprised to see an institutional investor from the region have a direct allocation to Russia. Any exposure is most likely small and part of a larger equity, bond or global or emerging mandate.

However, if Russia is in the fund’s benchmark and the investor has taken a passive approach, then they will be exposed. At present, however, it is difficult – and probably too soon – to see divestment flows and we have yet to see examples of benchmark shifts or forced divestments.

Many longer-term investment strategies that we recommend following during times like this should expect to weather such events and be positioned accordingly. It’s important to note that one of the main reasons we believe in managing portfolios that are generally more diverse than others is that events that are extremely difficult to predict happen on a regular basis, and even if you could predict them, the impacts second order they create are even harder to predict.

Rising commodity prices and increased short-term uncertainty may, however, have an impact on short-term asset allocation – from risky assets to assets offering better inflation protection. The prices of risky assets have recently fallen, which could provide opportunities in the future.


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