I recently wrote my forecast for the exchange rate. The government eventually extended the requirement for the mandatory sale of foreign currency earnings until April 30, 2025. Let me remind you that according to this rule, exporters are required to sell up to 80% of their total foreign exchange earnings.
Therefore, most likely the ruble exchange rate will continue to circulate in the 91-94 corridor, with a smooth increase in the long term.
The Ministry of Economy forecasts 98 rubles per dollar by the end of the year. The graph and technical analysis suggest that this forecast will most likely come true.
So how can you protect your investments if you don’t want to just buy currency?
It would seem – what options might there be in Russia if everything is under sanctions.
But there are options and there are a decent number of them:
Currency bonds in dollars (Replacement bonds)
Do not be afraid of the word “replacement” – this is the historical name of foreign currency bonds, which, due to sanctions, were blocked in Euroclear in 2022. In order to ensure payments to our Russian investors, the government ordered all companies that have foreign currency bonds to issue substitutes on the Moscow Exchange. In essence, replacements for those blocked securities were placed in the home jurisdiction, with coupons paid in rubles, but at the exchange rate on the date of payment.
That is, we buy these bonds for rubles, but the purchase price is recalculated at the current exchange rate. And coupons are also paid at the exchange rate on the payment date.
Accordingly, this is a foreign exchange instrument, but in an absolutely safe Russian legal framework, without the risk of blocking and new Western sanctions.
The only unpleasant nuance is the cost of such bonds. Their denomination is 1000 dollars. Investors with small portfolios will not be able to buy such a bond. And, of course, in order to create a diversified portfolio of such issues, you will need at least 500 thousand rubles, and preferably 1 million.
Examples:
However, new foreign currency bonds with a par value of $100 will soon hit the market.
These are no longer replacement bonds, but a new issue from Novatek.
Interesting placement:
Permanent coupon 6.5% in USD, but payments in rubles
Bonds for a period of 5 years
Offers, no depreciation
Currency bonds through exchange-traded funds
Another option for investing in foreign currency is to buy funds that invest in foreign currency bonds. This option is suitable for those who invest small amounts and for the long term.
I’ll describe a few words in simple words for those who don’t know what exchange-traded funds are.
The fund is formed by a management company, usually a large bank or investment company. Our largest funds are from Sberbank (Management Company First), Tinkoff, Alfa Capital, VTB (now VIM Investments). The capital that the fund attracts is used to purchase investment instruments. The fund has rules that state that the fund can buy other conditions. The advantage of the fund is that it is usually the most diversified, that is, there is a large basket of securities inside the fund. And when an investor buys a piece of the fund, he buys a piece of such a basket.
Exchange-traded funds are the most profitable, cheaper in terms of commissions (the management company charges commissions for asset management) and convenient in terms of purchase and sale (you can buy and sell at any time when the exchange is open).
I found four exchange-traded funds (ETIF) for foreign currency bonds. Which are now traded and available to investors on the Moscow Stock Exchange. I collected them in a table:
Pay attention to the cost. For example, BPIF from Tinkoff costs only 11 rubles.
For which you will buy a whole basket of foreign currency bonds of Russian companies. Quite a convenient way to invest.
But there are some disadvantages:
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the fund does not pay coupons (this is also a plus, because the fund does not pay a 13% tax on the coupon), the investor earns from the growth in the value of the fund’s share
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the fund constantly buys and sells assets, so it is not worth buying it for a short term, it may fall in price and you will sell at a minus price to get money. If the task is to park money for a year or two, three, then it is better to consider individual bond issues. Which are repaid on the date you need.
Yuan bonds
The beast that appeared on the Moscow exchange in 2022-23. Companies began to borrow in yuan instead of dollars and euros. We do not have a very large selection of yuan bonds, but nevertheless, this is also protection against the fall of the ruble.
The risks here are higher, because the Chinese, as an exporting country, can deliberately depreciate their currency. Just like our ruble is being devalued to replenish the budget.
They work like regular bonds. But to purchase, you will first need to buy yuan, and only then the bonds themselves.
Examples:
Gold. Eternal value and quasi-currency instrument
The base price of gold is formed in US dollars, so if we invest in gold, then we simultaneously invest in currency.
Let’s look at the graphs:
The gold price chart in rubles is almost exactly the same as the dollar/ruble exchange rate chart.
So in addition to the growth of gold, you can protect yourself from the fall of the ruble.
I will write a separate article on how to invest in gold.
In short, the main tools:
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gold bars
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Golden coins
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Unallocated metal accounts
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gold on the Moscow Exchange via GLDRUB_TOM
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perpetual gold futures
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gold funds
Gold bonds
Is it possible to invest in bonds whose price is tied to the price of gold and still receive interest?
Can!
In 2023, we got “gold” bonds from gold mining companies. For them, this is a very convenient option for attracting investment. Since their business directly depends on gold prices, and investors are happy, in addition, to receive interest in the form of a coupon.
Seligdar and Polyus have such bonds. However, it is impossible to buy Polyus bonds, there is no liquidity on the exchange (apparently some big guy took them and is not dividing them). Therefore, in my example, only Seligdar releases. Please note that the second issue is depreciated.
Here we have a quasi-quasi currency instrument. Gold through bonds with a coupon of 5.5%. That is, if the price of gold falls, the market price of these bonds will also fall. However, you will receive 5.5% in any case.
Perpetual currency futures
A more complex instrument, and if you have never bought futures and do not know what they are, then it is better to skip this option. Because leverage is built into any futures, because… it is bought for a fraction of its cost.
On the Moscow Exchange, there are three perpetual futures for currency pairs:
USDRUBF dollar/ruble
EURRUBF euro/ruble
CNYRUBF yuan/ruble
Many write that investments in foreign currency can replace shares of oil and gas exporters. I disagree here, because when buying shares, an investor must take other factors into account. Such as company reporting, how is the business doing? Is the company financially stable? How will she survive the crisis if it happens.
Agree, we invest in currency to protect our money from the devaluation of the ruble and from the constant black swans that fall on Russians like bricks on their heads. And stocks are not so reliable during such periods.
I was glad to share with you the main tools of foreign exchange investments in Russia in 2024.
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