The Navalny affair and the turmoil in neighbouring Belarus have already caused Russian equities to underperform the wider emerging markets by 643bp. Investors now worry that these events can lead to sanctions against Russia. Is there any material downside left? We believe it is unlikely that further losses could exceed 350bp. How long does it normally take for the Russian market to rebound after such events? A complete rebound looks likely to take less than 60 days in the case that there are no material sanctions. We regard the risk of material sanctions as very small – see pages 4-5 of our recent white paper.

(Please see the full version of the article with graphs in the attached pdf file.)

Looking at this analysis, the Navalny case is more significant than the  poisoning of the Skripals or the murder of Nemtsov. Accordingly, it is fair to say that the cumulative detraction from excess returns should be higher and the time for a full rebound should be longer.

Characteristics Navalny poisoning Skripals poisoning Nemtsov murder
Type of person Opposition leader Former spy and his daughter Opposition leader
Network of supporters in Russia Large No Small
How well-known among world leaders Very well Not known A bit
Case reviewed by OPCW* Likely to be Yes No

* Organisation for the Prohibition of Chemical Weapons

On the other hand, the Navalny case is far less significant than the annexation of Crimea or the downing of MH17, so the cumulative detraction from excess returns and the time for a full rebound should be far smaller compared to these two events.

In this context, potential involvement in Belarus would have a less material impact than the annexation of Crimea as well. We think that a Crimea scenario is unlikely due to the absence of local support in Belarus. It would be fair to conclude that the cumulative detraction is smaller and the time for a complete rebound shorter compared to the events around Crimea and the post Crimea sanctions.

Characteristics Crimea Belarus
Local people support of Russia involvement Yes No

Therefore, we believe that only a small downside of up to 350bp losses is left due to current geopolitical risks. Navalny and Belarus cases are less worrying than Crimea annexation and the rebound is around the corner.

Authors: Vladimir Tsuprov, CIO, Egor Kiselev, Head of International Business & Investment Marketing, Aleksandra Kuznetsova, Junior Investment Specialist

Navalny and Belarus how large can be the impact on Russia vs EM performance
Categories: Research