Russia funds trading in Korea hammered after invasion and sanctions

A view of the square outside the damaged local city hall of Kharkiv on March 1 [AFP/YONHAP]

Investors holding Russia-themed financial products are facing major losses following the global economic sanctions against the country.

Russian stocks plunged and the ruble weakened over the past week as the country's banks face restrictions on using SWIFT, the global messaging system that enables bank transactions, and as some exports to Russia were prohibited.

The Korean government agreed to join economic sanctions against Russia last week.

Trading on the Moscow Exchange has been suspended for almost a week since Russia's MOEX index plunged as much as 45 percent before recovering slightly to close down 33 percent on Feb. 24, when Russia began its attack on Ukraine. The currency fell by almost 30 percent from 110 rubles per dollar as of Friday morning from 84.95 rubles per dollar on Feb. 24.

In Korea, nine public Russia funds are offered, including an exchange-traded fund (ETF), according to FnGuide.

The price of the ETF, Kindex Russia MSCI (Synth), fell more than 55 percent as of Friday compared to Feb. 24. It currently trades around 10,000 won ($8).

The ETF invests in the over-the-counter swaps based on the MSCI Russia 25% Capped Index.

It "faces concern about being suspended or getting delisted," wrote Korea Investment Management, the manager, on its website, warning investors to be "extremely careful."

Korea Investment Management said the ETF's asset value could go to zero.

Individual investors net purchased 26 billion won of the ETF shares between Feb. 21 and Feb. 28, some on the expectation that the geopolitical tensions would quickly ease.

Punters gambling on Russia funds are also facing big losses.

"I signed up for the Russia fund last week on the expectation that the war would finish quickly," said a 33-year-old investor discussing a Feb. 24 investment. The person added that the current return is 14.5 percent, but fears it will plummet after ruble currency valuation is reflected in the product, which takes two days.

Multiple brokerages stopped dealing in Russian stocks, including search engine and web portal Yandex, payment service provider Qiwi and Ozon, an e-commerce company. They cited a sales ban by the Office of Foreign Assets Control under the U.S. Treasury Department.

NH Investment & Securities, Shinhan Investment and Toss Securities are among the brokerages ending trade in these stocks.

BY JIN MIN-JI, KIM YEON-JOO [jin.minji@joongang.co.kr]