Investors shed Russian risk as Ukraine conflict escalates

Investors have been scrambling to remove Russian exposure from their portfolios today, in anticipation of a ratcheting up of sanctions by western nations following today's invasion of Ukraine by Russian military forces.

The sell-off in assets linked to Russia has seen Anglo-Russian mining group Polymetal International lose more than 45% of its stock market value today, while Rolls-Royce PLC stock has fallen 13% as investors weigh its heavy reliance on Russian raw materials. This selling spilled over to fixed-income markets, with bonds backing the Derby, England-based jet-engine maker down more than a point in some tranches.

"We are trying to assess what the macro impact will be from the latest events on our portfolio, whether that is from higher oil or other input costs," said one manager. "Most of the market has already been through portfolios looking for Russian risk, but this is a wider event now."

While certain names have suffered all week as a result of escalating tension, some exposure to the Russian market has been less obvious. Bonds backing French carmaker Renault SA for example are among the worst performers today, after a research note published by J.P. Morgan outlined outsized exposure to Russia, with about 18% of sales linked to the country. Renault owns a 67.69% stake in Russian auto manufacturer AvtoVAZ, with the segment making up some 15% of 2021 sales for the group, the report said.

Renault debt issued as recently as December is down nearly 2 points today, with its €500 million of 2.5% unsecured bonds due 2027 quoted in a 94.5/95.1 market, according to Tradeweb — down from 96.2-bid at the close on Feb. 23.

Losses in hybrid bonds backing German oil and gas group Wintershall Dea AG have also intensified today, with its perpetual debt callable in 2026 and 2028 bid around 80 cents and 78 cents on the euro — down about 6 points and 5 points, respectively. According to BNP Paribas, 61% of Wintershall's reserves and 12% of its EBITDA stem from Russia, while the company is set to lose €730 million as a result of the decision by German chancellor Olaf Scholz to suspend the approval of the Nord Stream 2 gas pipeline this week, according to market sources.