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You need to have a medical plan for the Eastern European background

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Three weeks after the start of the war and the multiple sanctions against Russia, with the consequent withdrawal of Russia from the main indices that serve as a reference for different investment funds and mandates that invest both in Eastern Europe and in Emerging Countries (in the event of represent an important part), some measures are necessary that must be assumed by the managers and that are already materializing.

Russian stocks and bonds suffered heavily when the war began. Several asset owners with exposure to Russian equities or bonds were able to significantly reduce their allocations, even divesting altogether, with the resulting impact on NAV.

To put in context, the MSCI Emerging Markets Easter Europe index had a weight of Russia of almost two thirds, followed distantly by Poland with a weight close to 26%. On the other hand, the S&P Emerging EMA index lost a weight of 11.7% in Russia.

everyone Russian equity funds of funds with a large exposure to Russia will have no choice but to suspend trading “in accordance with the rules governing open-ended funds,” according to several investment professionals, warning that this is likely to remain the case for “a long time, and will be disastrous for such mandates.”

Since the Ukraine crisis began three weeks ago, the Russian stock market has remained closed for trading, Russian ETFs have fallen by more than 95%, and MSCI has reclassified its Russian emerging market indices to independent market status.

For its part, the emerging market debt index has also been exposed to significant financial losses. The JPM EMBI Global Diversified lost 6.5% in February, led by Russia which had a share of 3.1% and lost 1%, a drop of 72%. While the GBI EM Global Diversified index lost 5% in February with Russia’s share falling from 6.8% to 1.8%. But the collateral damage was the heavy losses on Ukrainian bonds.

More than a dozen Russia-focused funds have already suspended trading globally, while Russian shares listed on the London Stock Exchange have lost value by an average of 98%. “If investors withdraw their money, the funds will not be able to meet these refunds and will have to close,” says a manager.

“There will be many funds that have some exposure to Russian assets, these assets are non-tradable and effectively priceless at the current time and therefore the funds’ ACD is likely to do some type of price adjustment to deal of assessing fair value,” Hughes explicitly states. “In a fast-moving situation, that’s clearly a challenge.”

wider branches

Liontrust’s head of multi-assets, John Husselbee, commented that in the past geopolitical issues have caused alarming and irritating short-term volatility in risk assets, they have tended “not to have much of an impact on long-term investment performance.” “.

While Husselbee agreed that the uncertainty could prompt more caution from central banks, he expects “lower returns and more volatility in 2022.”

“This year is likely to be a nerve-wracking one and, as always, I recommend against trying to get in and out of the markets if the going gets tough,” he said.

For managers who have already invested in Russian assets, Hughes argued that they are unlikely to be able to sell them outright now, even if they wanted to.

“Asset managers need to make rational decisions rather than knee-jerk reactions to protect the interests of existing investors,” he said. “For some, this may be meaningful to sell when positions can, but this may not always be the case.”

Towli even argued that if the situation is resolved at some point in the future, there could be “a lot of value” in stocks such as Gazprom, Lukoil and Sberbank.

Franklin Templeton has waived the gesture fee for his Eastern Europe fund for the duration of the NAV calculation suspension for his Templeton Easter Europe fund. Others who have advertised similar drugs to BNP Paribas, JPMorgan, Amundi, UBS, Schroders, BlackRock, East Capital, Pictet, Liontrust, Danske Bank, among others. These are available in Lipper, the total number of activities in Russia marketed in Europe and the end is up to 5.7 billion euros.

On the side of managers with ETFs that have Russia as an exposure Black Rock, HSBC, Van Eck they have suspended redemptions, as well as the creation of orders of their ETFs.

At the same time, the pension funds have also taken some measures, including the Norwegian sovereign wealth fund He drew up a plan to sell all his investments in Russia after realizing that the 27 billion kroons worth of such assets from earlier in the year was now worth only a tenth, potentially worth nothing.

calipersanother of the large pension funds in the US with assets of around 480,000 million dollars in assets under management and with an exposure to Russia close to 900 million dollars, commented that it did not have Russian debt, although At the end of February, nearly 500 million dollars in investment appeared in Russia, and measures are being taken in this regard.

Swiss pension funds are grappling with the possibility of selling undervalued Russian assets, which still represent a small part of their portfolio allocations and are experiencing market corrections in the aftermath of the war. compensatewiss, the public manager of Switzerland’s social security funds, with total assets of 40.88 billion Swiss francs, has said that the question of selling Russian shares has not yet been raised as the markets are closed, although it commented that this type of the measures must be carefully studied. Her exposure at the end of January was 0.05% of total assets.

For his part, the pension fund has suffered substantial losses since they have Russian companies and bonds, around 0.1% (20 million francs) of total assets, with falls of close to 60% since the beginning of 2022, not only because of Russia but also because of types of interest, inflation. According to one of its directors, they are examining how to proceed with their Russian investments, but “the options are limited” since they are not negotiating.

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