Speaker 1: Bloomberg Audio Studios, podcasts, radio news. When Russia launched its
Speaker 1: full scale invasion of Ukraine in twenty twenty two, the US,
Speaker 1: the EU, and other G seven allies responded with an
Speaker 1: attack of their own on Russia's economy. The US and
Speaker 1: its allies in Europe and NATO countries have all come
Speaker 1: together and basically blocked the Russian financial system from getting
Speaker 1: any financing outside of Russia. That meant sanctions on Russia,
Speaker 1: its companies, and its wealthiest citizens, the freezing of hundreds
Speaker 1: of billions of dollars worth of assets, and strict restrictions
Speaker 1: on trade between Russia and Western nations. But since taking office,
Speaker 1: President Trump has been signaling a warmer relationship with Russia. Meanwhile,
Speaker 1: yesterday's talks between the US and Ukraine and Saudi Arabia
Speaker 1: yielded a proposal for a thirty day truce. Russia may
Speaker 1: agree to a truce eventually, but Putin wants his own
Speaker 1: conditions met first, which could drag out negotiations. Now the
Speaker 1: world is watching to see whether the countries will be
Speaker 1: able to broker peace, and so are investors.
Speaker 2: A lot of analysts and a lot of investment cousies
Speaker 2: are looking now to see whether the Russia market is
Speaker 2: soon going to be tradeable again.
Speaker 1: Bloomberg's Tony Halpin has been covering the Russia Ukraine conflict
Speaker 1: and its economic ramifications from Dubai after leaving Moscow at
Speaker 1: the start of the war. He says the US's about
Speaker 1: face on Russia has set off speculation in the financial
Speaker 1: world that Russia might soon be open for business, and
Speaker 1: investors willing to take on the reputational and financial risks
Speaker 1: are getting ready to take advantage.
Speaker 2: There's an increasing level of optimism among traders, among clients
Speaker 2: of traders who are looking for Russian assets, that perhaps
Speaker 2: those sanctions will be eased by the Trump administration, may
Speaker 2: be even removed entirely if there's a settlement to the
Speaker 2: word war between Russia and Ukraine. But at the end
Speaker 2: of the day, they're still dealing with a country whose
Speaker 2: president Vladimir Putin is wanted by the International Criminal Court
Speaker 2: as an alleged war criminal for crimes in Ukraine. It
Speaker 2: remains the country that began the war. In Ukraine, hundreds
Speaker 2: of thousands of people have been wounded or killed, millions
Speaker 2: more have been made into refugees. The economy of Ukraine
Speaker 2: has been devastated, and all of this was essentially the
Speaker 2: consequences of one man's decision, which was Vladimir Putin's to
Speaker 2: go to war in twenty twenty two.
Speaker 1: I'm Sarah Holder, and this is the big tick from
Speaker 1: Bloomberg News Today on the show, why some investors are
Speaker 1: eager to start doing business with Russia again and what
Speaker 1: taking that gamble could mean for Russia and Ukraine's economies.
Speaker 1: Russia has been under some form of US and europe
Speaker 1: sanctions since Russian troops illegally annexed Crimea in twenty fourteen,
Speaker 1: But in the years before Russia launched its full scale
Speaker 1: invasion of Ukraine in twenty twenty two, Bloomberg's Tony Happen
Speaker 1: says it was still a major hub for international investment.
Speaker 2: Russia was a hugely attractive story for international investment, and
Speaker 2: the reason for that is simple. After the collapse of
Speaker 2: the Soviet Union at the end of nineteen ninety one,
Speaker 2: there was this enormous new consumer market opening up which
Speaker 2: basically wanted everything it couldn't get its hands on, enough
Speaker 2: Western products and enough Western brands, and there was a
Speaker 2: lot of investment in Russia which was intended to meet
Speaker 2: the domestic demand for goods anything from cars to perfumes,
Speaker 2: and that was an enormous market to tap. So Russia
Speaker 2: clearly was the destination where most of this investment went.
Speaker 2: There were people there growing increasingly wealthy as Russia's oil
Speaker 2: boom got underway in the beginning of this century. Vladimir
Speaker 2: Putin seemed to be a leader who was modernizing the country,
Speaker 2: who in many ways presenting a moderate face to the West,
Speaker 2: who was welcoming to foreign business. It seemed very much
Speaker 2: to many foreign investors that this was a story that
Speaker 2: couldn't be missed and that they really should get in
Speaker 2: on the ground floor. That meant there was enormous amounts
Speaker 2: of investment in production facilities in Russia and in consumer brands.
Speaker 1: Well, how did that investment picture change when Russia invaded
Speaker 1: Ukraine in twenty twenty two and several countries, including the US,
Speaker 1: put heavy sanctions on Russia.
Speaker 2: If you think about the investment in Russia before the
Speaker 2: war and from the period of the Soviet unions collapsed,
Speaker 2: that's hundreds of billions of dollars, and practically overnight that
Speaker 2: flow ceased and began to go into reverse. Many Western
Speaker 2: multinationals were rushing for the exit. They were trying to
Speaker 2: get out of Russia because the Group of Seven countries
Speaker 2: led by the US and the European Union pretty immediately
Speaker 2: imposed very heavy sanctions on Russia in an attempt to
Speaker 2: bring its economy to the knees. Bankings and were particularly difficult.
Speaker 2: Russia was kicked out of the Swift banking system, for example,
Speaker 2: and companies were desperate to leave. They had to contend
Speaker 2: with the Russian government, which didn't want them to go,
Speaker 2: which made it very difficult, imposed quite tough restrictions, very
Speaker 2: high level haircuts on the value of assets that were sold,
Speaker 2: and that really disrupted the whole cycle of economic development
Speaker 2: in Russia. Russia itself had become very heavily dependent on
Speaker 2: trading with the European Union, for example, something like two
Speaker 2: hundred and fifty eight billion euros worth of trade in
Speaker 2: the year before the war began. It had to reorient
Speaker 2: itself away from Europe when Europe turned away from, for example,
Speaker 2: Russian gas and oil supplies, and it had to look
Speaker 2: for new markets.
Speaker 1: Talk about that reorientation. How did Russia adapt?
Speaker 2: They already had very strong relations with China. Those relations
Speaker 2: were intensified. China became an economic lifeline for Russia, not
Speaker 2: only by purchasing increased amounts of energy, particularly gas, but
Speaker 2: by being a supplier of goods that Russia could no
Speaker 2: longer get from Europe, and it turned to other countries
Speaker 2: like India and the Global South. India was a fairly
Speaker 2: negligible importer of Russian oil before the war began. Last year,
Speaker 2: something like thirty to forty percent of India's oil imports
Speaker 2: came from Russia.
Speaker 1: So Russia turned to China and India for imports and exports.
Speaker 1: What about for investment?
Speaker 2: This has been the big problem for Russia. Really, it's
Speaker 2: replaced the foreign investment with an enormous domestic spending boom.
Speaker 2: The government has just thrown money at the economy from
Speaker 2: its reserves that had built up over many years. It's
Speaker 2: used those reserves to support businesses that were affected by sanctions,
Speaker 2: and it's used those reserves essentially to fund the defense
Speaker 2: production that was needed to support the military. So Russia
Speaker 2: increasingly became a war economy dependent on its own expenditures
Speaker 2: on defense production and the military.
Speaker 1: How would you characterize Russia's wartime economy? What are its
Speaker 1: greatest strength and its greatest weaknesses.
Speaker 2: Well, it's interesting. I think if you talk to many
Speaker 2: Russians before the war, they would have said that their
Speaker 2: army was strong, but their economy was weak, and therefore
Speaker 2: they needed a quick victory because the economy wouldn't have
Speaker 2: been strong enough to support the military. As it turned out,
Speaker 2: it was the other way around. That the military had
Speaker 2: a lot of weaknesses and flaws, but the economy proved
Speaker 2: remarkably resilient. Russia has a very highly qualified group of
Speaker 2: technocrats who are running their economy, both in the central
Speaker 2: bank and in the government. So they have managed and
Speaker 2: they have experience of managing economic crisis, and they managed
Speaker 2: this crisis reasonably well. They avoided complete collapse, and they've managed,
Speaker 2: in fact, to keep the economy growing. After an initial
Speaker 2: dip in response to the sanctions. Last year, the economy
Speaker 2: grew something like three point nine four percent. So this
Speaker 2: year is going to be tougher because the sanctions are
Speaker 2: having a cumulative impact on Russia and Russia's running out
Speaker 2: of resources to support its economy. But what we learned
Speaker 2: from investment houses and traders is that there's been a
Speaker 2: blick of interest among people in getting some exposures to
Speaker 2: Russian essets again and trying to understand how they can
Speaker 2: do that in the current environment, and also how they
Speaker 2: can jump in when they think the environment changes, when
Speaker 2: they think the sanctions regime eases or is removed.
Speaker 1: But just why are some Western investors eager to enter
Speaker 1: Russian markets again? That's after the break three years after
Speaker 1: Russia launched its full scale invasion of Ukraine. The US's
Speaker 1: relationship with Russia is thawing. President Trump took a call
Speaker 1: with Putin in February and is pushing for a swift
Speaker 1: end to the war that Putin started, and Bloomberg's Tony
Speaker 1: Halpin says some investors are looking for signs that the
Speaker 1: US sanctions on Russia could soon be relaxed. Tony's been
Speaker 1: covering the economic piece of this conflict for years, so
Speaker 1: I asked him, how much does the US's changing position
Speaker 1: on Russia have to do with the economic opportunities Trump
Speaker 1: sees in the country.
Speaker 2: I think that's an important element of it. To be honest,
Speaker 2: that Trump views Russia as a potential partner on big
Speaker 2: issues like energy, on development of the Arctic resources, on
Speaker 2: development of trade routes, and he sees Russia also as
Speaker 2: important in his China strategy. I think they want Russia
Speaker 2: to reduce its dependence on China, to reduce its involvement
Speaker 2: with China, and one way to do that is to
Speaker 2: improve its partnership with the US. But of course, to
Speaker 2: do that, the war has to end.
Speaker 1: As the US continues its talks with Russia and with Ukraine,
Speaker 1: how likely is it that sanctions would be fully removed
Speaker 1: or partly removed And what are potential roadblocks too removing sanctions.
Speaker 2: I think there are two elements here. Actually, we have
Speaker 2: to remember that the US and the EU, while they've
Speaker 2: been working in coordination to apply sanctions, are taking a
Speaker 2: very different view to the way that negotiations are unfolding
Speaker 2: currently between Russia and Ukraine. And so I think it's
Speaker 2: quite likely that the Trump administration would like to ease
Speaker 2: sanctions and maybe even remove them, because Trump takes a
Speaker 2: different view of how this war started and who's responsible
Speaker 2: for it than the Biden administration. But the European Union
Speaker 2: is very much in support of Ukraine. They continue to
Speaker 2: view Russia as an aggressor, and they have reached consensus
Speaker 2: among twenty seven nations for applying sanctions and to undo
Speaker 2: those sanctions will take a similar level of consensus, and
Speaker 2: it's very difficult to do because every country has their
Speaker 2: own national interests and those interests have to somehow be
Speaker 2: brought together and resolved through consensus and a decision made.
Speaker 2: Trump has much more power than the European Union to
Speaker 2: lift sanctions quickly, and that leads to the prospect of
Speaker 2: a situation where the US, for example, has eased or
Speaker 2: removed sanctions, but the European Union has not, and that's
Speaker 2: a nightmare scenario for many companies.
Speaker 1: How are investors reacting to the possibility of a peace
Speaker 1: deal and fewer sanctions.
Speaker 2: We learn from analysts and investment companies that there's been
Speaker 2: a spike in interest among clients looking for Russian assets.
Speaker 2: It's very difficult to do, though, because you can't in
Speaker 2: any way be associated with sanctioned entities, and not pretty
Speaker 2: much every significant Russian bank is sanctioned. But the consensus
Speaker 2: among many and this is that a lot of these
Speaker 2: assets are underpriced because of the war and because of
Speaker 2: the sanctions. That discount will disappear pretty rapidly if the
Speaker 2: situation changed. Were you surprised to hear that at some
Speaker 2: level yes, because I think there's a great deal of
Speaker 2: excitement about the prospect of President Trump pulling off a
Speaker 2: peace steal. But the hurdles are formidable, and it's not
Speaker 2: clear so far that there'll be a successful deal reached.
Speaker 2: And even if there is a successful deal reached to
Speaker 2: halt the fighting, now how durable will that piece be?
Speaker 2: And one of the risks for impressors, I think is
Speaker 2: precisely that some sort of peace deal is reached, sanctions
Speaker 2: that eased, investors pile in and then something happens to
Speaker 2: resumption of hostilities, and then the question becomes our sanctions reimposed?
Speaker 2: If they're not reimposed, do you want to be invested
Speaker 2: in a country that is again a war. So there
Speaker 2: are lots of medium term risks, and it's not yet
Speaker 2: clear how those risks will be resolved.
Speaker 1: What about reputational risks of investing in the ruble, investing
Speaker 1: in Russian assets.
Speaker 2: Yeah, it's clearly very high because of the fact that
Speaker 2: Russia was the aggressor in this war, and the situation
Speaker 2: has been muddied by the US essentially changing position. Before
Speaker 2: the war it was on the side of Ukraine. Since
Speaker 2: President Trump came to office, it's tried to present itself
Speaker 2: much more as a mediator between two warring sides. Well politically,
Speaker 2: of course, that's a position you can take, and it
Speaker 2: may be controversial, it may attract criticism. But if you're
Speaker 2: an investor and you're facing reputational risks, then you've got
Speaker 2: to answer questions from shareholders. Russia was responsible for Europe's
Speaker 2: biggest war since World War Two, and that may be
Speaker 2: uncomfortable for many companies to answer. And I think they
Speaker 2: may feel that there's safety in numbers, and many will
Speaker 2: probably be waiting for a sign that one or two
Speaker 2: significant investors return to Russia, and then they'll be a
Speaker 2: kind of heard rush to get back in if they
Speaker 2: think the waters are safer, or the Trump administration is
Speaker 2: showing that it wants investors to go back to Russia.
Speaker 1: If investors do return and trade with Europe and the
Speaker 1: US starts to resume, that'll be a boost to Russia's
Speaker 1: energy sector and its technology sector. But Tony also said
Speaker 1: that Western companies might not be welcomed back to the
Speaker 1: country with open arms.
Speaker 2: Many Western multinationals have lost their business share in Russia,
Speaker 2: and they've lost them to companies from China or India
Speaker 2: or elsewhere. They may well try and impose conditions on
Speaker 2: their return, both because they were unhappy that the fact
Speaker 2: that these companies left Russia and because they think they
Speaker 2: can that they think they can impose conditions that will
Speaker 2: be favorable for Russia if Western companies come back.
Speaker 1: We've been focusing on Russia in this conversation, but I'm
Speaker 1: wondering where this all leaves Ukraine. What about the possibility
Speaker 1: of more investment there. Our investor is expressing similar optimism
Speaker 1: about Ukraine as a potential peace deal comes into focus.
Speaker 2: Yeah, I mean potentially Ukraine needs to be rebuilt, right.
Speaker 2: It's been the object of devastation for three years and
Speaker 2: so much of the infrastructure needs to be repaired. Many
Speaker 2: of the European partners of Ukraine have billions of dollars
Speaker 2: to help it rebuild. So companies will be eager to
Speaker 2: get in on that market and to find ways in
Speaker 2: which they can contribute to the reconstruction as a way
Speaker 2: to invest in the Ukrainian economy. The US and Ukraine
Speaker 2: assigning this joint minerals deal which will set up a
Speaker 2: fund for joint investment in Ukraine's future, So again there'll
Speaker 2: be US companies eager to take part in that, both
Speaker 2: in the exploitation of mineral resources and in servicing the
Speaker 2: needs of the Ukrainian economy, but they need certainty that
Speaker 2: the war has come to an end and that Ukraine
Speaker 2: is investable again.
Speaker 1: This is the Big Take from Bloomberg News. I'm Sarah Holder.
Speaker 1: This episode was produced by Jessica Beck. It was edited
Speaker 1: by Aaron Edwards and Edward Evans. It was fact checked
Speaker 1: by Adriannatapia and mixed and sound designed by Alex Sugia.
Speaker 1: Our senior producer is Naomi Shaven. Our senior editor is
Speaker 1: Elizabeth Ponso. Our executive producer is Nicole beamsterborn Sage Bauman
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