Can Things Get Any Worse for Russia? You’re About to Find Out

For a decade, Dmitri Barinov has been following the volatile economy of his homeland from the safe distance of Union Investment’s offices in Frankfurt. Last year, as other money managers were steering clear of Russia’s broken economy, the Moscow-born Barinov pulled off something of a coup: He persuaded his bosses to take the plunge and buy Russian government bonds. It was a narrow bet, but he ended up winning because the central bank—after implementing the biggest interest rate hike since the Russian financial crisis in 1998 to prop up the collapsing ruble—changed course and aggressively backtracked. In the first 10 months of 2015, ruble-denominated government bonds handed investors such as Barinov a 25 percent return in dollar terms, the biggest gain for local bonds anywhere.

This year not even Barinov can spot an escape from the rubble of an economy mired in its longest recession in two decades. Sanctions imposed by the U.S. and the European Union to punish President Vladimir Putin for meddling in Ukraine remain a drag on growth. And oil’s decline to a 13-year low has been catastrophic for Russia, where almost 50 percent of government revenue comes from crude and natural gas. “With oil, you rely on a very volatile factor,” says Barinov, who oversees about $2.6 billion in assets. So as far as he’s concerned, “all bets are off.”