Calpers Joins BlackRock's Goldberg Ramping Up on Russian Debtby and
U.S. pension fund now has overweight position in Russia
BlackRock's Goldberg says ruble adjustment changed his mind
Two of the world’s biggest money managers are returning to Russia, betting the best rally in emerging-market bonds in the past five months won’t be derailed by international conflicts or the collapse of its main export, oil.
Mike Rosborough, a senior money manager at the California Public Employees’ Retirement System, said the ruble has “found stability” and Russian bond yields are “very high.” The 14 percent gain in the ruble since the end of August has put it on a firmer footing, helping ease concern about the impact of international sanctions linked to the Ukraine dispute, said Pablo Goldberg, an emerging-market money manager and senior debt strategist at BlackRock Inc., which oversees $4.5 trillion.
“Since the emerging-market problems started, and really probably the last two years, we’ve been underweight,” Rosborough, who helps oversee Calpers’ $295 billion in assets, said in an interview in Moscow on Wednesday, referring to Russian sovereign debt. “Now we’re above-weight.”
The stronger ruble is paving the way for central bank head Elvira Nabiullina to resume an interest rate-cutting cycle as she contends with damage inflicted on the nation from sanctions and an emergency increase last year to 17 percent. While the country is in a recession, the economy is showing some signs of improvement: Service industries from hotels and restaurants unexpectedly returned to growth in September, and business sentiment is the strongest in 14 months.
Calpers has increased its Russian holdings to overweight in the past two months, and may keep buying the nation’s bonds after building a $250 million position in local-currency notes, Rosborough said. The Sacramento-based money manager said Russian government ruble bonds, known as OFZs, comprise about 5 percent of Calpers’ $5 billion international fixed-income portfolio. The yield on Russia’s January 2028 ruble bond fell to 10.1 percent in Moscow today, the lowest since November 2014.
“If the current trajectory continues, I think we will probably be comfortable adding to it,” he said.
Russia’s sovereign dollar bonds have returned 17 percent this year as the cease-fire in eastern Ukraine has held following an agreement in February backed by the governments in Moscow and Kiev. The currency has appreciated 5.6 percent this month against the dollar after tumbling 15 percent in the third quarter.
In addition to the weight of sanctions, oil, Russia’s biggest export earner, has erased half its value in the past 12 months. Brent crude traded at $49.65 per barrel at 11:05 a.m. in New York, a decline of 41 percent in the past year.
Goldberg said Russia is among the countries he likes most, a contrast to last year when he avoided investing in the nation following its annexation of the Crimea peninsula and support for pro-Russian rebels in Ukraine that led to international sanctions.
“When the sanctions were very much involved, we at BlackRock took a very important decision back then, in 2014, reducing significantly our exposure to Russia,” Goldberg said. “Then we realized actually that sanctions were never going to get to the level that we thought was a threat to investment. And then we came back to Russia.”