Prepare for further Russia sanctions: ING

The lead portfolio manager of emerging market equities at ING Investment Management said he expected to see further capital outflows this year and was concerned Russia may face more explicit and implicit sanctions.

Even without these, the country’s economy would “feel the long-term effects in 2014”, he said.

Last month, the US and EU imposed sanctions on Russia over the annexation of Crimea and the crisis in eastern Ukraine, and there has been further speculation recently that the country could be hit by further sanctions.

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Mr Griffiths said: “While the short-term effects of current sanctions have largely been priced in, Russian corporates and consumers will face higher costs of capital and increasing difficulties in dealing with the outside world.”

He added that ING IM’s “base case scenario” was that Russia is unlikely to invade eastern Ukraine and thereby trigger the mooted phase-three sanctions from the west. He expects, however, Russia to keep increasing pressure on the Ukrainian government.

He said: “The EU, which finds itself in the midst of a weak economic recovery, is dependent on Russia for energy imports and some of its member states fear for their lucrative exports to Russia.

“A unilateral action to impose phase-three sanctions by the US will have far-reaching consequences for their European partners’ ability to conduct business with Russia.”

Mr Griffiths added that the current unrest meant privately owned Russian energy and materials companies now offered an attractive investment entry point given the “depressed valuations, superior resource base, increasingly stable taxation framework and attractive free cash flow and dividend yields”.

Adviser view

Ben Yearsley, head of investment research at Charles Stanley Direct, said: “Russia is a market that has been fraught with political worries and will continue that way for the foreseeable future. It isn’t for the faint-hearted investor. Shorter-term issues, such as capital outflows and international sanctions can create buying opportunities for the brave. I am still buying, but the longer the current crisis continues, the more damage is done.”