Russia Mutual Fund Withdrawals Set for Record Amid Sanctions

Outflows from Russian mutual funds accelerated in July and are on track for an annual record as the standoff in Ukraine and a slumping ruble sent investors fleeing into foreign markets.

Asset managers pulled 663 million rubles ($18 million) out of the nation’s mutual funds last month, four times more than in June, according to data from yesterday. The year-to-date exodus stood at 17.2 billion rubles, more than any calendar year since the company began compiling the data in 2005. Russian funds focused on investing abroad registered 2.4 billion rubles of net inflows in the period, the data show.

Investors have withdrawn from Russian assets as deepening U.S. and European Union sanctions over President Vladimir Putin’s actions in Ukraine threaten to exacerbate an economic slowdown and further weaken the third worst-performing emerging-market currency. Bond funds accounted for the lion’s share of the outflows, while those focused on equities suffered less.

“Geopolitical tensions, a weak ruble and very poor market performance have made Russian assets unattractive,” Vladimir Vedeneev, chief investment officer at Raiffeisen Capital in Moscow, said by e-mail yesterday. “People just want to protect their savings from depreciation of the local currency.”

The ruble has depreciated 8.6 percent against the dollar this year, surpassed only by the Argentine and Chilean pesos among developing countries.

Investing Abroad

While the Micex Index of equities was set for its biggest rally in three months this week on signs tension with Ukraine is easing, the measure has fallen 6.4 percent this year, compared with a 7.1 percent increase for the MSCI Emerging Markets Index.

Raiffeisen Capital’s equity fund tracking U.S. stocks registered the biggest inflows among foreign-focused Russian mutual funds this year, attracting 977 million rubles, according to Outflows from the country’s equity funds totaled 3.2 billion rubles, while withdrawals from bond funds reached 16.9 billion rubles.

“Generally this year we have spent much more time analyzing U.S. and EU markets than last year,” Vedeneev said. “Our conversations with investors now start with questions about U.S. market sentiment rather than about Russian markets.”

Investors globally have pulled $940 million from Russia stock funds and $413 million from Russian bond funds in the year through Aug. 12, according to data compiled by EPFR Global.

Before it's here, it's on the Bloomberg Terminal.