With Donald Trump already promising to end the war in Ukraine once he is reinaugurated as US president in January, some emerging market investors are already talking about Russia's reopening as a capital markets destination. But will anyone pay it a visit and if so, when?
The end of war in Ukraine, which began in 2022, could well remove the main reason that made Russia a prohibited capital market. Therefore, it is not unreasonable to think about what to do if sanctions ease, permitting investment once again.
Given the recent escalation in the conflict, with Ukraine's allies allowing for their missiles to be launched at targets in Russia, that idea may sound far fetched.
But it is on some investors' minds.
After all, Russian issuers were once a big part of the emerging market bond universe, issuing $21.3bn-equivalent in dollars and euros in 2021, according to Dealogic. It is worth bearing in mind that the country reached that volume despite some Russian issuers already having no market access at that stage thanks to earlier sanctions.
The first things to ask are: will sanctions be lifted and should investors pile back into Russian assets?
To tackle those questions in reverse order, people will have their own views on the morality of investing in Russia.
However, the fact is that emerging market investors have a long pedigree of putting such quandaries aside. The killing of Jamal Khashoggi in the Saudi consulate in Istanbul in 2018 did not stop the Saudi sovereign pricing a $4bn bond in early 2019 from an order book of more than $27bn from 400 investors. Bookrunners at the time said Khashoggi had come up in discussions about the deal.
Moreover, Russia had been subject to sanctions before 2022 as well over its annexation of Crimea in 2014. Bond investors found ways around the proscriptions by buying in the secondary market, rather than primary, for example.
Therefore, while Russian issuers will almost certainly have to pay up to come in from the cold, history suggests there will be buyers for Russian bonds if and when they do become available again — especially as they would be offering outsized returns.
This is despite the string of sometimes self-flagellating press releases from funds in 2022 denouncing investing in Russia as an ESG faux pas. Some funds even used these statements to apologise for not having pulled out of Russia before being forced to do so by law.
What is far less certain is when Russia's capital markets will reopen. Trump may have vowed to end the war, but no one can say when, or what that will look like — nor what sort of peace will follow.
And even if peace does bring the removal of sanctions, there is no guarantee that they will be lifted quickly.
In the next few weeks a $50bn loan is expected to be finalised to Ukraine from the US, EU and other partners — including the UK — that is backed by proceeds generated from frozen Russian assets.
If the war ends soon and sanctions were to be removed immediately, would these lenders — who also decide on the lifting of the sanctions — get their money back?
This raises a pertinent point. While all are hoping that the war is over quickly, it would first present another huge investment opportunity for international money before it rolls back into Russian coffers: the reconstruction of Ukraine.