From South Africa to Hungary, bond markets profit from Russian losses
* Fear of sanctions is as bad as sanctions themselves
* Foreign holdings of rouble government debt down sharply
* Russia is worst performer this year in emerging bond index
* South Africa, Hungary and Turkey returning to favour
By Sujata Rao
LONDON, May 8 (Reuters) - Emerging market investors are dumping once-hot rouble bonds due to the threat of tougher sanctions hanging over Russia, shifting funds to the likes of South Africa, Hungary and Turkey which only recently had been unpopular.
Seemingly conciliatory comments from President Vladimir Putin on the Ukraine crisis have soothed markets this week. But fears remain that the West - which has so far targeted only a small number of Russian individuals and firms - will impose harsher sanctions, including on the financial sector.
"The fear of sanctions is as bad as sanctions themselves. The fear is: what could you do with Russian assets if sanctions get ratcheted up?" said Kieran Curtis, a portfolio manager at Standard Life Investments, who has gone overweight Turkish local bonds at the expense of Russia.
Russian government bonds, one of the top emerging market trades of 2012 and 2013, are feeling the heat far more than equities, which have been out of favour for a long time. Continuación...