Investors reeling from a collapse in emerging markets amid Russia’s invasion of Ukraine are starting to look for buying opportunities.

Pacific Investment Management Co. is interested in Romania and commodity producers after a knee-jerk selloff in markets stretched indiscriminately across risk assets. BCA Research is waiting for the perfect moment for investors to snap up heavily discounted or pro-cyclical assets. Even cautious BlackRock Inc. acknowledged that financial opportunities were created in the aftermath of Russia beginning a war with its neighbor.

“We’re starting to see -- not quite bargain basement -- but still very, very attractive valuations,” said Yacov Arnopolin, executive vice president and senior portfolio manager at Pimco, on Bloomberg Radio.

An across-the-board selloff gripped bonds, stocks and currencies from emerging markets on Thursday after Russia’s full-scale invasion of Ukraine and amid deepening tension with the West. It’s a tightrope walk for money managers brave enough to hunt for deals in an asset class also throttled by stubborn inflation, upcoming Federal Reserve tightening and China’s regulatory crackdowns.

But for Pimco’s Arnopolin, the market impact of geopolitical risk events tend to be relatively short-lived, meaning time will help reverse losses in nations that have few deep connections to the situation -- like Nigeria or Argentina.

Adding Risk
Already, after the unveiling of stronger sanctions by U.S. President Joe Biden and his allies on Russia, dip buyers began to unexpectedly appear across Wall Street to spur a rally in stocks while oil prices reversed gains. The ruble traded around 1% higher in the onshore market on Friday after Thursday’s 5% decline.

For emerging assets, “we don’t see this as a sudden-stop event for an entire asset class,” said Cathy Hepworth, head of emerging-market debt at at PGIM Fixed Income. “It is unlikely that broad emerging markets would underperform other risk markets once recent events are digested. At this juncture, it does not appear current events will lead to a global systemic shock.”

As Goldman Sach’s Caesar Maasry points out, the global economy is in a very different stage today compared with 2014, in the months after Russia’s annexation of Crimea. Equity valuations across the central European countries of Poland, Czech Republic and Hungary, as well as Turkey and South Africa, screen “significantly lower” than their trough valuations in 2014, he said.

That, of course, doesn’t mean the risk is anywhere near over. Western allies see Kyiv poised to fall to Russian forces within hours as fighting continued in Ukraine with Russian troops hitting from the north, south and east. President Volodymyr Zelenskiy’s defense chief is predicting a new wave of attacks.

“We’re refraining from adding risks right now, but there are opportunities created that we’re evaluating very thoughtfully,” BlackRock Global Chief Investment Strategist Wei Li said.

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