Ruble to the Rescue?

April was the best month for the ruble since 1993. The Russian currency is up 18 percent against the dollar so far this year. Those gains pushed Russian stocks up and rewarded investors who stuck it out or were brave enough to jump back in. They’re not big enough, though, to save the country’s faltering economy. And new data suggest many big investors are still skeptical.

Russia’s currency has been steadily rebounding this year, with the exchange rate falling from 70 rubles to the dollar at the end of January to fewer than 50 rubles to the dollar on Wednesday. The value of the currency has gotten a boost from a recovery in the price of oil, Russia’s largest export. But even though the ruble rally pushed up the value of Russian stocks, big institutional investors didn’t rush to jump back into the market. Some companies that manage money for big institutions such as pension funds and endowments may have actually cut back their Russian holdings, according to new numbers from data provider eVestment.

Despite a Russian stock rally of 22 percent so far this year, much of which came in the first quarter, the exposure to Russia among the nearly 500 emerging-market funds that report to eVestment barely budged between the end of last year and the end of March this year. The portion of money the median company invested in Russian stocks increased modestly from 2.3 percent of its assets at the end of 2014 to 2.7 percent, compared with more than 6 percent two years ago.

To be sure, there are still the Russia bulls, which include funds that focus on investing in only Russian assets. In April, as the ruble rebounded, some funds scrambled to snap up Russian bonds so they wouldn’t miss out.

But when it comes to big investors in the Russian stock market, the majority seem to be staying put or even reducing their Russian stakes. Out of the 10 asset managers with the largest investments in Russia reported to eVestment, only two increased their exposure to Russia by more than the market increased, suggesting a bullish stance. Four saw their portfolios increase, but not by as much as the market. And four companies ended the first quarter with a decrease in the amount of money they had invested in Russia, even as the market was soaring. This suggests that they saw the upswing in the market as a good opportunity to sell off some of their Russian stocks — or that they invested so poorly that their Russia portfolios lost a lot of value despite a huge market rally.

The eVestment numbers could change because not all managers have reported for the first quarter, but at least so far the data suggest that more managers are taking a pessimistic long-term outlook on Russian investments, even as the ruble and the stock market have skyrocketed.

And they may be justified in their cautious stance — many analysts think the good times won’t last.

The overall outlook for the Russian economy is still far from rosy. The World Bank said in April that it expects GDP to contract in 2015 by 3.8 percent. Although other analysts are even gloomier, the government remains optimistic that the economy will shrink only about 3 percent this year.

The ruble itself, meanwhile, may have its best days behind it.

Chris Weafer, of Moscow-based consultancy Macro-Advisory, sees the ruble falling in value in coming weeks and ending the year at 65 rubles to the dollar, significantly weaker than now. He said oil prices, which are volatile and still relatively low, and the ongoing Ukraine conflict remain the biggest threats.

“The key risk remains a resumption of heavy fighting in eastern Ukraine,” Weafer said in a recent analyst’s note. “In that event, hopes for an easing or lifting of sanctions later this year will evaporate and investors will again start to worry about the legacy impact of the crisis and the sustainability of Russia’s current crisis management.”

It all comes back to politics in the end. The European Union is expected to renew sanctions against Moscow in early June, ensuring that business relations between Russia and the West won’t be returning to normal anytime soon.

The ruble, though, is finding some new fans outside Russia. Russian-backed separatists in eastern Ukraine are using rubles to buy gas and pay pensions. Bloomberg reported this week that rubles have become widely accepted in rebel-held areas for buying everything from bus tickets to groceries. That could make it harder for Ukraine to ever wrest back that territory, even if the shaky cease-fire holds. And pensioners and shopkeepers in those areas might be happy to use the ruble — the only currency that did worse than Russia’s last year was Ukraine’s, and it has yet to recover.

Photo credit: DIMITAR DILKOFF/AFP/Getty Images