Investors take a bold gamble on Russia’s re-entry into financial markets

Key topics:.Trump's stance on Russia fuels investor speculation on sanctions easing.Russia's wartime economy remains resilient but faces long-term challenges.Ukraine's post-war reconstruction could attract major global investment..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Sarah Holder and Jessica Beck___STEADY_PAYWALL___.As Trump signals a warmer relationship with Putin and a peace deal between Russia and Ukraine comes into focus, optimistic investors and businesses are eyeing potential opportunities in a re-opened Russian economy. But investing in Russia is still a risky bet..On today's episode of the Big Take, host Sarah Holder talks to Bloomberg's Anthony Halpin about why some investors are enthusiastic about Russia's possible return to global financial markets..Here is a lightly edited transcript of the conversation:.Sarah Holder: When Russia launched its full-scale invasion of Ukraine in 2022 the US, the EU, and other G-7 allies responded with an attack of their own — on Russia's economy.. Elizabeth Schulz : US and its allies in Europe and NATO countries have all come together and basically blocked the Russian financial system from getting any financing outside of Russia..Holder: That meant sanctions on Russia, its companies, and its wealthiest citizens — the freezing of hundreds of billions of dollars worth of assets. And strict restrictions on trade between Russia and Western nations. But since taking office, President Trump has been signaling a warmer relationship with Russia. Meanwhile, yesterday's talks between the US and Ukraine in Saudi Arabia yielded a proposal for a 30-day truce. Russia may agree to a truce eventually – but Putin wants his own conditions met first, which could drag out negotiations. Now, the world is watching to see whether the countries will be able to broker peace. And so are investors..Tony Halpin: A lot of analysts and a lot of investment houses are looking now to see whether the Russia market is soon going to be tradable again..Holder: Bloomberg's Tony Halpin has been covering the Russia-Ukraine conflict — and its economic ramifications — from Dubai, after leaving Moscow at the start of the war. He says the US's about-face on Russia has set off speculation in the financial world that Russia might soon be open for business. And investors willing to take on the reputational and financial risks are getting ready to take advantage..Halpin: There's an increasing level of optimism, among traders, among clients of traders who are looking for Russian assets that perhaps those sanctions will be eased by the Trump administration, may be even removed entirely if there's a settlement to the war between Russia and Ukraine. But at the end of the day, they're still dealing with a country whose President Vladimir Putin is wanted by the International Criminal Court as an alleged war criminal for crimes in Ukraine. It remains the country that began the war in Ukraine. Hundreds of thousands of people have been wounded or killed. Millions more have been made into refugees. The economy of Ukraine has been devastated. And all of this was essentially the consequences of one man's decision, which was Vladimir Putin's to go to war in 2022..Holder: I'm Sarah Holder, and this is the Big Take from Bloomberg News. Today on the show: why some investors are eager to start doing business with Russia again. And what taking that gamble could mean for Russia and Ukraine's economies..Read more: 🔒 Bitcoin slumps as investors hedge, ETFs see record outflows.Holder: Russia has been under some form of US and European sanctions since Russian troops illegally annexed Crimea in 2014. But in the years before Russia launched its full-scale invasion of Ukraine in 2022, Bloomberg's Tony Halpin says it was still a major hub for international investment..Halpin: Russia was a hugely attractive story for international investment. And the reason for that is simple. After the collapse of the Soviet Union at the end of 1991, there was this enormous new consumer market opening up, which basically wanted everything. It couldn't get its hands on enough, Western products and enough Western brands, and there was a lot of investment in Russia, which was intended to meet the domestic demand for goods, anything from cars to perfumes, and that was an enormous market to tap. So, Russia clearly was the destination where most of this investment went. There were people there growing, increasingly wealthy as Russia's oil boom got underway in the beginning of this century. Vladimir Putin seemed to be a leader who was modernizing the country, who was in many ways presenting a moderate face to the West who was welcoming to foreign business. It seemed very much to many foreign investors that this was a story that couldn't be missed, and that they really should get in on the ground floor. That meant there was enormous amounts of investment in production facilities in Russia and in consumer brands..Holder: Well, how did that investment picture change when Russia invaded Ukraine in 2022 and several countries, including the US, put heavy sanctions on Russia..Halpin: If you think about the investment in Russia before the war and from the period of the Soviet Unions collapsed, that's hundreds of billions of dollars and practically overnight that flow ceased and began to go into reverse. Many Western multinationals were rushing for the exit, they were trying to get out of Russia because the group of seven countries led by the US and the European Union pretty immediately imposed very heavy sanctions on Russia in an attempt to bring its economy to the knees. Banking sanctions were particularly difficult. Russia was kicked out of the SWIFT banking system, for example. And companies were desperate to leave. They had to contend with the Russian government, which didn't want them to go, which made it very difficult, imposed quite tough restrictions, very high-level haircuts on the value of assets that were sold. And that really disrupted the whole cycle of economic development in Russia. Russia itself had become very heavily dependent on trading with the European Union. For example, something like 258 billion euros worth of trade in the year before the war began. It had to reorient itself away from Europe when Europe turned away from, for example, Russian gas and oil supplies, and it had to look for new markets..Holder: Talk about that reorientation. How did Russia adapt?.Halpin: They already had very strong relations with China. Those relations were intensified. China became an economic lifeline for Russia, not only by purchasing increased amounts of energy, particularly gas but by being a supplier of goods that Russia could no longer get from Europe. And it turned to other countries like India and the global South. India was a fairly negligible importer of Russian oil before the war began. Last year, something like 30 to 40% of India's oil imports came from Russia..Holder: So, Russia turned to China and India for imports and exports. What about for investment?.Halpin: This has been the big problem for Russia, really. It's replaced the foreign investment with an enormous domestic spending boom. The government has just thrown money at the economy from its reserves that had built up over many years. And it's used those reserves to support businesses that were affected by sanctions, and it's used those reserves essentially to fund the defense production that was needed to support the military. So, Russia increasingly became a war economy. Dependent on its own expenditures, on defense production and the military..Read more: 🔒 Trump launches $5m "Gold Card" for immigrant investors.Holder: How would you characterize Russia's wartime economy? What are its greatest strengths and its greatest weaknesses?.Halpin: Well, it's interesting, I think if you talk to many Russians before the war, they would've said that their army was strong, but their economy was weak, and therefore they needed a quick victory because the economy wouldn't have been strong enough to support the military. As it turned out, it was the other way around, that the military had a lot of weaknesses and flaws, but the economy proved remarkably resilient. Russia has a very highly qualified group of technocrats who are running their economy, both in the central bank and in the government. So, they have managed, and they have experience of managing economic crises, and they managed this crisis reasonably well. They avoided complete collapse, and they've managed, in fact, to keep the economy growing after an initial dip in response to the sanctions. Last year, the economy grew something like 3.94%. So, this year is going to be tougher because the sanctions are having a cumulative impact on Russia and Russia's running out of resources to support its economy. But what we learned from investment houses and traders is that there's been a spike of interest among people in getting some exposure to Russian assets again and trying to understand how they can do that in the current environment and also how they can jump in when they think the environment changes, when they think the sanctions regime eases or is removed..Holder: But just why are some Western investors eager to enter Russian markets again? That's after the break..Holder: Three years after Russia launched its full-scale invasion of Ukraine, the US's relationship with Russia is thawing. President Trump took a call with Putin in February and is pushing for a swift end to the war that Putin started. And Bloomberg's Tony Halpin says some investors are looking for signs that the US sanctions on Russia could soon be relaxed. Tony's been covering the economic piece of this conflict for years. So, I asked him — how much does the US' changing position on Russia have to do with the economic opportunities Trump sees in the country?.Halpin: I think that's an important element of it, to be honest. Trump views Russia as a potential partner on big issues like energy, on development of the Arctic resources, on development of trade routes. And he sees Russia also as important in his China strategy. I think they want Russia to reduce its dependence on China, to reduce its involvement with China. And one way to do that is to improve its partnership with the US. But of course, to do that, the war has to end..Holder: As the US continues its talks with Russia and with Ukraine, how likely is it that sanctions would be fully removed or partly removed? And what are potential roadblocks to removing sanctions?.Halpin: I think there are two elements here actually. We have to remember that the US and the EU, while they've been working in coordination to apply sanctions, are taking a very different view to the way that negotiations are unfolding currently between Russia and Ukraine. And so, I think it's quite likely that the Trump administration would like to ease sanctions and maybe even remove them because Trump takes a different view of how this war started and who's responsible for it than the Biden administration. But the European Union is very much in support of Ukraine. They continue to view Russia as an aggressor and they have reached consensus among 27 nations for applying sanctions. And to undo those sanctions will take a similar level of consensus. And it's very difficult to do because every country has their own national interests. And those interests have to somehow be brought together and resolved through consensus and a decision made. Trump has much more power than the European Union to lift sanctions quickly. And that leads to the prospect of a situation where the US, for example, has eased or removed sanctions, but the European Union has not. And that's a nightmare scenario for many companies..Holder: How are investors reacting to the possibility of a peace deal and fewer sanctions?.Read more: 🔒 Global investors question US tech dominance as China's big tech rises – Shuli Ren.Halpin: We learned from analysts and investment companies that there's been a spike in interest among clients looking for Russian assets. It's very difficult to do though because you can't in any way be associated with sanctioned entities and pretty much every significant Russian bank is sanctioned. But the consensus among many analysts is that a lot of these assets are underpriced because of the war and because of the sanctions. That discount will disappear pretty rapidly if the situation changed..Holder: Were you surprised to hear that?.Halpin: At some level, yes, because I think there's a great deal of excitement about the prospect of President Trump pulling off a peace deal, but the hurdles are formidable and it's not clear so far that there'll be a successful deal reached, and even if there is a successful deal reached to halt the fighting now, how durable will that peace be? And one of the risks for investors I think is precisely that some sort of peace deal is reached. Sanctions are eased, investors pile in, and then something happens to trigger a resumption of hostilities. And then the question becomes, are sanctions reimposed? If they're not reimposed, do you want to be invested in a country that is, again, at war? So, there are lots of medium-term risks, and it's not yet clear how those risks will be resolved.Holder What about reputational risks of investing in the ruble, investing in Russian assets?.Halpin: Yeah, they're clearly very high because of the fact that Russia was the aggressor in this war, and the situation has been muddied by the US essentially changing position. Before the war it was on the side of Ukraine. Since President Trump came to office, it's tried to present itself much more as a mediator between two warring sides. But politically, of course that's a position you can take, and it may be controversial, it may attract criticism. But if you're an investor and you are facing reputational risks, then you've got to answer questions from shareholders. Russia was responsible for Europe's biggest war, since World War II, and that may be uncomfortable for many companies to answer and I think they may feel that there's safety in numbers and many will probably be waiting for a sign that one or two significant investors return to Russia and then there'll be a kind of herd rush to get back in if they think the waters are safer or the Trump administration is showing that it wants investors to go back to Russia..Holder: If investors do return and trade with Europe and the US starts to resume that'll be a boost to Russia's energy sector and its technology sector. But Tony also said that Western companies might not be welcomed back to the country with open arms.Halpin: Many Western multinationals have lost their business share in Russia and they've lost them to companies from China or India or elsewhere. They may well try and impose conditions on their return, both because they were unhappy about the fact that these companies left Russia and because they think they can, they think they can impose conditions that will be favorable for Russia if Western companies come back..Holder: We've been focusing on Russia in this conversation, but I'm wondering where this all leaves Ukraine. What about the possibility of more investment there? Are investors expressing similar optimism about Ukraine as a potential peace deal comes into focus?.Halpin: Yes. I mean, potentially, you know, Ukraine needs to be rebuilt, right? It's been the object of devastation for three years and so much of the infrastructure needs to be repaired. Many of the European partners of Ukraine have pledged billions of dollars to help it rebuild. So, companies will be eager to get in on that market and to find ways in which they can contribute to the reconstruction as a way to invest in the Ukrainian economy. The US and Ukraine are signing this joint minerals deal. Which will set up a fund for joint investment in Ukraine's future. So again, there'll be US companies eager to take part in that, both in the exploitation of mineral resources and in servicing the needs of the Ukrainian economy. But they need a certainty that the war has come to an end and that Ukraine is investible again..Read also:.Moschato Hive, Athens – The sweet spot for Golden Visa investorsJonathan Levin: Stock bears are disappearing – should investors be concerned?Robinhood targets younger investors for $180bn wealth transfer: Marc Rubenstein.© 2025 Bloomberg L.P.

Investors take a bold gamble on Russia’s re-entry into financial markets

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