Foreign investors want out of the economic crossfire, but can't exit Russian holdings

Transcript

SARAH MCCAMMON, HOST:

The United States and its allies have made Russia the most sanctioned country in the world. And caught in the economic crossfire are foreign investors. The value of their holdings has plummeted. Russia's stock market remains closed. So as NPR's David Gura reports, unloading investments is proving to be a real challenge.

DAVID GURA, BYLINE: Over the four decades or so Ferrill Roll has been a professional investor, he's developed a strong tolerance for risk. But two of the portfolios he manages for the firm Harding Loevner include shares of Russian companies. And Russia's invasion of Ukraine caught him off guard.

FERRILL ROLL: A gut punch, I mean, where some of our portfolios have lost significant capital for our clients. And that always hurts.

GURA: Even if you're not someone who's invested in individual Russian companies, you may have skin in the game. Russian energy giant Lukoil, for instance, is part of international and emerging markets funds. Shares are in pension funds. The financial services firm Morningstar estimates U.S. funds had around $70 billion worth of exposure to Russian stocks and bonds before the war started. When the invasion happened, Russia's currency cratered. And a ruble is now worth less than one cent. Meanwhile, Russian stocks tanked, and Moscow responded by closing its markets. That means investors are stuck, which makes the situation worse.

ROLL: There is no question that the emotional response is to get out of these securities if you can.

GURA: But there's no indication of when Russia will reopen the stock market. And it's imposed new restrictions on outside investors. Shares of Russian companies that are listed in London and New York have also been halted or suspended. And even when the stock market does reopen, analysts expect it will continue to plunge. Marko Papic is the chief strategist at the Clocktower Group.

MARKO PAPIC: I mean, it's basically impossible to actually liquidate positions. But what you do is you basically write it down to zero. And, you know, you expect that you will take a pretty significant hit on that exposure.

GURA: Harding Loevner has valued its Russian holdings at zero. BlackRock, which is the world's largest asset manager, says it will no longer by Russian securities. And Vanguard, which manages more than $7 trillion, has followed suit. Mark Mobius is well-known among investors for the years of work he's done in emerging markets, including Russia, although he stopped investing there last year. Mobius is sympathetic to portfolio managers who are trying to navigate this turmoil.

MARK MOBIUS: You know, my advice is hang on and hope for the best because there's no way you can sell and get the money out.

GURA: And that describes what Ferrill Roll is doing. He's hanging on. In a note to investors after the war began, Roll admits that he should've taken President Biden's warning about the potential for a Russian invasion of Ukraine more seriously. But he's trying not to dwell on that. Like many investors, Roll also thinks about how difficult it is to predict the future. He says he's come to regret hasty decisions he's made in the past, like selling stocks after the Hong Kong handover. And even though Roll the role and his colleagues have valued their Russian holdings at zero, they don't consider them worthless - yet.

ROLL: We think these are very strong companies that are under extreme pressure

GURA: Roll invested in Lukoil, which is down 92% year to date. And Yandex, Russia's answer to Google, is down almost 70%. And even though it's kind of hard to imagine right now, one day, there may be investors who will see that as a buying opportunity. David Gura, NPR News, New York. Transcript provided by NPR, Copyright NPR.