Russian Assets are becoming ‘uninvestable’, Goldman Sachs

The United States, its European allies, and Canada agreed over the weekend to shut off important Russian banks from the SWIFT messaging system, which connects over 11,000 banks and financial institutions in over 200 nations.

“The SWIFT sanctions and the associated price rise of key imported commodities surely increases the risk of stagflation in Europe as real household incomes are squeezed further. If central banks indeed continue to feel the need to fight inflation even as it becomes more explicitly driven by supply factors rather than demand factors, we would expect further curve flattening and, potentially, even some curve inversion,” said Stefan Koopman, an economist at Rabobank.

New US sanctions against Russian financial behemoths Sberbank and VTB will take effect on March 26, however many governments have yet to publish many details of the new measures.

According to Goldman Sachs, Russian assets have become "uninvestable" as a result of the newest wave of international sanctions on Russia for its invasion of Ukraine.

“Russia has become not just uninvestable for new capital, but will trap legacy foreign capital parked in Russia,” said Hasnain Malik, a strategist at Tellimer in Dubai.

A crucial move is to freeze the Central Bank of Russia's $630 billion foreign reserve stockpile, barring the central bank from purchasing the Russian ruble from Western financial institutions and liquidating assets. This comes on the heels of actions taken last week that effectively barred Russian banks from participating in the Western financial system.

The Russian ruble depreciated by another 29% against the dollar early Monday morning, hitting an all-time low before recovering some of its losses by mid-afternoon, as the central bank more than doubled the country's benchmark interest rate to 20% from 9.5 percent to counteract the risk of further depreciation and inflation.

Traders predicted that events over the weekend will push energy prices considerably higher, boosting the possibility of economic stagnation in the global economy, and that many were putting more money into safe-haven assets and volatility hedges.

With Russian assets under enormous strain, emerging market countries that produce commodities and are geographically separated from the war – such as Latin America and the Gulf – may present a more appealing medium-term investment opportunity.

However, with much of the specifics around the execution of sanctions still unknown, as well as certain differences between the US and the EU in terms of specific entities, it may be too early to determine the full impact of these recent developments on the central bank.

Former Deputy Chairman of Russia's Central Bank Sergey Aleksashenko told CNBC on Monday that while volatility may be limited until the full scope of the implementation is known, the new sanctions could bring the central bank to a standstill.