• Investors are looking for discounted Russian assets that could jump in value on a Ukraine peace deal.
• President Donald Trump has fueled hopes the war might end soon and Russia could rejoin global markets.
• Risks include a resumption of the conflict and a reimposition of sanctions.

Investors are quietly searching for beaten-down Russian assets that could surge in value if a peace deal is struck and capital floods back into the country. It won't be easy money.

Traders have been snapping up shares of foreign-listed Russian companies and bought Kazakhstan's tenge currency as a ruble proxy, Bloomberg reported. Wall Street banks have been hunting Russian corporate bonds to satisfy demand from Middle Eastern family offices, and pitching their clients on ruble-linked derivative contracts called "non-deliverable forwards" that bypass sanctions, per the outlet.

"There's an aggressive search for securities of Russian issuers around the world," Moscow-based investment banker Evgeny Kogan told Bloomberg. "Investors in general are asking how quickly they can enter the Russian market."

Russia's invasion of Ukraine in early 2022 sent investors scattering and spurred Western countries to impose sanctions that have choked Russia's banking sector and wider economy.

US President Donald Trump is working to broker an end to the war and spoke to Russian President Vladimir Putin on Tuesday, but the pair couldn't reach terms on a cease-fire meaning further negotiations lie ahead.

Rising ruble

Eswar Prasad, a senior professor of trade policy at Cornell University and a senior fellow at the Brookings Institution, told Business Insider: "The prospect of a peace deal and the lifting of sanctions on Russia is likely to result in a wave of financial capital flowing into the country in the hopes of profiting from rebounds of its economy, financial markets, and currency."

Trump's confidence that a truce isn't far away has contributed to the Russian ruble rising more than 20% against the dollar this year. The currency is now the strongest it's been in more than seven months.

However, a combination of sanctions and internal controls has made it tricky for Western institutional investors to bet on Russia. That has fueled demand for non-deliverable forwards that don't involve any Russian nationals or physical assets.

"The main ruble trade is in the NDF market but it is largely hedge funds participating in this trade due to the relatively low liquidity," Roger Mark, a fixed-income analyst at Ninety One, told BI.

"The rationale is clear — potential spot appreciation on the hope of the war ending and a normalization in Russia's economic relationship with the US/West," he said.

'High risk'

Still, Mark cautioned that a cease-fire is far from assured, Trump could still escalate sanctions against Moscow, the ruble has strengthened considerably already, and reopening Russia to the world could lead to capital flowing out instead of in.

"With sanctions risks still meaningful amid an uncertain policy outlook, it remains a high-risk currency for institutional investors to allocate to, especially given its poor liquidity and off-benchmark nature," Mark said.

Betting on Russian assets also poses legal and reputational risks to investors if they act too soon, and even if Russia and Ukraine lay down arms, there's no guarantee that conflict won't flare up again.

"Uncertainty about the durability of any peace deal and the possibility of the reimposition of sanctions in the future could restrain such capital inflows into Russia, once the initial euphoria has passed," Prasad said.

• Russian President Vladimir Putin said the ruble's plunge to two-year lows was no cause for panic.
• The Russian currency hit its lowest level against the dollar since March 2022 this week.
• Analysts say Russia is under pressure from inflation, military spending, and falling oil prices.

Russians shouldn't stress about the ruble tumbling to two-year lows, Vladimir Putin said Thursday. Analysts told Business Insider there was plenty of cause for concern.

The Russian leader told reporters that the "situation is under control" and that "there are absolutely no grounds for panic," according to a Google translation of a report from the RIA Novosti news agency.

Putin attributed the ruble's fluctuations "not only to inflation but also to budget payments and oil prices," along with many seasonal factors.

The Russian currency traded at 114 to the dollar on Wednesday, its weakest level since March 2022, shortly after the Ukraine invasion began. It was about 84 in early August, meaning the currency has depreciated by 36% in under four months. A greenback was worth about 108 rubles on Friday.

Russia's central bank stepped in to shore up the floundering ruble on Wednesday. It suspended purchases of foreign currency on the domestic market for the rest of this year to reduce volatility.

A Wednesday headline in the state newspaper Rossiyskaya Gazeta read, "Panic attack for Russia's currency market." The Kommersant newspaper warned readers to "buckle up your rubles."

The ruble's latest plunge follows the US sanctioning Gazprombank, one of Russia's largest lenders. The restrictions limit the bank's ability to access global financial markets and handle energy payments.

Russia also fired a hypersonic missile into Ukraine last week after its opponent launched missiles at targets inside Russia for the first time. The escalation has raised concerns of further economic disruption.

A weakening ruble benefits Russian exporters by making their goods more competitive in global markets. But it threatens to accelerate inflation by raising the cost of imports, leaving sellers little choice but to increase their prices. Stubborn inflation has already spurred Russia's central bank to raise the main interest rate to 21%, the highest level since 2003.

The Russian economy has suffered from Western sanctions imposed since Putin's invasion of Ukraine, with energy revenue tanking by almost a quarter last year. Other countries, such as India, have snapped up Russian oil instead, tempering the impact of price caps and other penalties.

Mounting pressure on Russia

Robin Brooks, a senior fellow focused on the global economy and development at the Brookings Institution, posted on X that the ruble's collapse shows how vulnerable Russia is to sanctions.

He also said the European Union's reluctance to impose certain penalties might have staved off economic disaster in Russia.

George Pavel at the trading platform Naga.com told BI the ruble's dive had been driven by rising inflation and a widening budget deficit fueled by heavy military spending.

"Russia's economic path looks unsustainable barring major changes," he said, ticking off concerns such as slowing growth, stubborn inflation, a tight labor market, and the massive cost of the Ukraine war.

Brent crude is trading at just over $70 a barrel, and sliding oil prices pose an existential threat to Russia, said Kathleen Brooks, research director at XTB.

"Russian income is shrinking at the same time as defense spending is surging as the war with Ukraine enters a more intense phase," Brooks said. "While President Trump may go some way to ending the Russia-Ukraine war, his policy on energy and plans to get the US pumping even more oil could weigh on the oil price further in 2025, which is bad news for Russia."