The investor who’s sticking with Russia

Investors were dumping anything Russian, and the hedge-fund manager was happy to take the other side of the trade. He snapped up shares of energy giants Rosneft, Lukoil and Gazprom. He bought banks—including Russia’s largest lender, Sberbank—and some local retailers and mining companies.

When Mr. Amaryan’s buying spree ended, some 55% of his investment firm’s $250 million was in Russian stocks, up from 30% to 35% before the invasion.

Bargain-hunting investors love to buy when everyone else is selling. That impulse has been consistently rewarded in the U.S. stock market, where the Dow industrials have soared to 291 record closes since 2008.

Russia is a different case altogether. Its leader is waging a brutal war on Ukraine that has claimed more than 1,000 civilian lives. Its financial infrastructure has been severed from the West. Its stock market is an exchange in name only, with foreign investors barred from selling shares that have lost much of their value.

Big investors like Vanguard Group and Fidelity International are waiting at the exit, hoping to get out without losing everything. But Mr. Amaryan has no plans to sell. He is convinced Russian stocks are still investible, despite their steep losses.

The dynamic offers a glimpse of a remade Russian market, isolated from the world’s money centers and dominated by fortune-hunters like Mr. Amaryan who have decided the financial and political risks are worth the potential gains.

“We definitely don’t have rose-tinted glasses on. Everything is difficult," Mr. Amaryan said. “But we are, compared to others, at the level where we feel we’re ready to step in."

Mr. Amaryan, 41, straddles two worlds. His firm, Balchug Capital, is registered in Armenia, where he was born, but he lives and works in Moscow. Russian stocks accounted for up to 70% of Balchug’s returns last year on average, a person familiar with the matter said. The firm has 11 employees in Moscow and five in Yerevan, Armenia, where Mr. Amaryan lived until he was 14.

Mr. Amaryan started his finance career on Wall Street. He left New York for Moscow in 2003 to join Citigroup Inc., where he advised ultra-high-net-worth clients. A stint followed at a prestigious Russian investment bank that was later swallowed by Sberbank.

He put down roots in Moscow, performing as a DJ in local clubs and founding a martial arts studio where he practices Brazilian jujitsu.

Mr. Amaryan launched his own firm, Copperstone Capital, in 2010. The firm ran into trouble in 2015, when the Securities and Exchange Commission accused Copperstone and other funds of trading on information gleaned from stolen, unpublished press releases. He paid a $10 million settlement in 2016 but didn’t admit wrongdoing.

Mr. Amaryan, who maintained his innocence during the proceedings, changed the firm’s name to Balchug after the settlement. He was never banned from managing money.

The firm went big on Russian stocks after investors shunned the country for its 2014 invasion of Crimea. In 2019, some 80% of Balchug was invested in Russia, via local Russian stocks and securities trading in New York and London. Mr. Amaryan loaded up on oil and steel companies. The firm was up 46% that year, according to a person familiar with the matter.

Balchug cut some of those positions to lock in gains when the pandemic hit.

By 2021, he was ready to get back into Russia. Commodity prices were high, and the firm had done well with Russian metals and mining companies. Some were paying 15% dividends at the time, and the entire market was trading at a 30% to 35% discount to other emerging markets.

Expecting sanctions but not war, Mr. Amaryan early this year cut down on the debt he was using to buy stocks, increased the firm’s cash position to between 15% and 17% and pared some holdings of Russian and Western companies. Balchug used futures contracts to hedge the ruble and bought shares in a company that operates high-quality coal mines that operate in Russia but sell coal to China for U.S. dollars.

Mr. Amaryan was “quite confident" Russia wouldn’t go to war with Ukraine, he told the Financial Times in early February. “If there was going to be a war, people would be acting in a different way," he said. “Everybody is quite calm."

A friend woke Mr. Amaryan at 5 a.m. on Feb. 24, telling him to flip on the news. Mr. Putin declared that Russia was sending troops into Ukraine. “That was a shock," he said. “I knew from that point on it was going to be a difficult period."

His first thoughts turned to how to protect his firm and his clients—spread across Russia, the U.K., the European Union and the United Arab Emirates—in case sanctions were imposed. He moved more of the firm’s money to Western banks outside Russia, where most of it now resides.

A day after the invasion, Mr. Amaryan started buying again.

He couldn’t believe Russia’s blue-chip companies would go bankrupt, despite their steep fall. He checked with clients to ensure they didn’t have any moral qualms about the buying. They told him to do his job and make money, he said.

“The biggest oil companies and biggest banks cannot be worth a few hundred million dollars," Mr. Amaryan said, referring to Russian companies’ precipitous decline on foreign exchanges.

The war in Ukraine brings back memories of a childhood in Armenia marked by military skirmishes.

“When you manage a hedge fund in the best of times, you try not to let emotions get in the way and create some biases," he said. “It’s more difficult at times like this."

But Mr. Amaryan said he is optimistic. “Even the worst things in the world have a beginning and an end," he tells his clients and employees. He said he hasn’t gotten any redemption requests.

While he waits for the market to recover, Mr. Amaryan is looking at U.S. and European tech companies, and bargain-hunting among Chinese stocks.

He expects conditions in Russia to be tough for the next six to 12 months. Still, he is open to adding to his Russian holdings—at the right price.

When the market cracked open in late March, Mr. Amaryan held back. He said he is waiting for foreign investors to sell, which could provide a better entry point. Prices would have to fall at least 20% to 30% before he thinks about buying more, Mr. Amaryan said, assuming the situation in Ukraine doesn’t worsen.

Longer term, he thinks Russia’s relationship with China will help ease the sting of Western sanctions. He ticks off oil, gas, wheat, grain, nickel, palladium and fertilizer as exports that solidify the country’s standing as a vital trading partner.

“We have had many examples in our recent history when people thought that was the end of the world. It never is," Mr. Amaryan said. “And if, God forbid, things get much worse, none of us is going to care about the stock market anyway."

This story has been published from a wire agency feed without modifications to the text