A number of major asset managers are still ploughing capital into Russia, despite the risk of further sanctions from the US and the rest of the international community.
GMO Capital, the $70bn (£49bn) firm co-founded by Jeremy Grantham, today stated that its emerging market fund was "overweight" on Russian equities – meaning that it holds a higher proportion than the emerging markets benchmark.
"We don't think the US is exercising the 'nuclear option' of trying to tank the Russian economy," said the head of GMO's emerging markets equity team Arjun Divecha.
"We are quite comfortable with our overweight in Russian equities in the GMO Emerging Markets Strategy, as these positions continue to be extremely cheap in our view."
Russian equities markets, and the country's rouble currency, have taken a hammering following an alleged nerve agent attack by the country in Salisbury and proposed US sanctions for its support for the Syrian government regime.
But Aberdeen Standard Investments' emerging markets debt team, which is also overweight on Russia, also told City A.M. that much of the fear surrounding Russian assets is likely to be overblown.
"The latest round of US sanctions on Russian oligarchs and companies has prompted a big sell-off in Russia sovereign, quasi-sovereign and corporate bonds, reflecting concerns over the threat of further sanctions as relations between Russia and the West continue to deteriorate," said Kevin Daly, a senior investment manager at Aberdeen Standard.
A ban on investing in sovereign bonds, including Gazprom which is majority government-owned, would be the worst case scenario for offshore investors as ownership of hard currency and local currency debt is elevated.
Though such a ban has been suggested, by politicians including junior US congressman Joaquin Castro, Aberdeen Standard believes this would be unlikely to be approved by the US due to the harm it would cause to investors.
Added to that, Daly said the EU would be wary of any bans that include Gazprom since the business provides around 30 per cent of gas for Europe.
However, Fidelity International's multi-asset portfolio manager Ayesha Akbar was more cautious.
"It is not clear how far the collateral damage from the recent sanctions will spread or if stronger sanctions might follow," she said, adding that increasing exposure to Russian assets might still be "premature" for most investors.
“Markets often over-react to news flow before moderating, but recent history shows us this is not always the case," she explained.
"In 2014, Russian credit default swaps widened by 20 basis points to 195 basis points a few days after the sanctions were announced, had moved to 300 basis points after a week and hit 600 basis points after several months. This may induce investors to adopt a wait-and-see attitude for the time being.”
Data from asset management research firm Evestment suggests that though UK and global emerging markets asset managers have been reducing their exposure to Russian equities of late, they are still far more bullish on the country's prospects than they were between 2014 and 2016.
Proportion of emerging markets active asset managers overweight in Russian equities
Orange line represents UK asset managers, blue line represents global asset managers
Though the data has not yet been gathered for the first quarter of 2018, Evestment said that anecdotally only one manager had gone from overweight to underweight.