What to do now with the Russian ADR/GDR?

Monday, 08. August 2022

Taiwan conflict could turn into a world war –

The visit of Nancy Pelosi, the Speaker of the US House of Representatives, to Taiwan caused anger and a harsh reaction in China. Pelosi was immediately sanctioned. She was banned from travelling to Taiwan because she was interfering in internal affairs. In addition, the ongoing manoeuvre was intensified with rocket fire and a similar threat was set up as Russia did in February on the Ukrainian border. The USA immediately sent warships to the Pacific. The USA would defend Taiwan in the event of an attack, but this could also trigger a world war.

The danger of a world war is no less great due to the never-ending Ukraine war, should it spill over into Poland or should there be a conflict with NATO. The geopolitical dangers thus accumulate in the months of August/September, which calls for caution among investors. Investors in Russia now have the problem of converting the ADR/GDR into original shares. The broker Freedom Finance could make this possible, but haste is required. Andreas Männicke gives his assessments of the geopolitical dangers, but also of the possibilities of converting the ADR/GDR into original Russian shares in his market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 197 at www.YouTube.com , which will follow later.

Nancy Pelosi provokes China at inopportune time by visiting Taiwan

US Congresswoman Nancy Pelosi’s visit to Taiwan was, from China’s point of view, a provocation and an interference in internal affairs. Pelosi was henceforth banned from entering Taiwan. China considers Taiwan a breakaway republic that belongs to China. In recent years, Taiwan has taken a democratic path and distanced itself from China. It established its own trade relations all over the world. Taiwan is a very important producer of semiconductors, which are needed all over the world.

The USA sends warships to Taiwan

US President Joe Biden has repeatedly stressed that he would help Taiwan militarily if China were to attack Taiwan. Biden has also sent warships to the region and aircraft from China have already entered Taiwan’s airspace during manoeuvres. The military in Taiwan is on alert. The situation is not without danger, because in the event of an attack by China on Taiwan, it could lead to a world war, whereby NATO would probably support the USA if there were a military confrontation between the USA and China.

A super-disaster looms in Ukraine

But the war in Ukraine could also escalate at any time if nuclear power plants are hit by the Russians. One of the largest nuclear power plants in the south of Ukraine, Zaporizhzhya, has now been fired upon and partially caught fire. The International Atomic Energy Agency (IAEA) warns against playing with fire, which could cause radioactive contamination for the whole of Ukraine and beyond. Here, both parties accuse each other of shelling the nuclear power plant. In the event of further shelling, a nuclear catastrophe looms. In the event of a nuclear catastrophe, NATO would also intervene, but that would then also mean a world war. The situation is currently dangerous for the whole world. The southern part of Ukraine is where most of the fighting is now taking place, and it is here that Ukraine hopes to recapture territory with the new multiple rocket systems of the USA.

NATO’s intervention in the Ukrainian war may trigger World War 3

Similarly, Russian positions in Poland could be attacked, where NATO would also intervene. War crimes are being committed on both sides. For example, Amnesty International has raised the issue that Ukraine is using its own population in residential areas and schools as shields, accepting that civilians will also die. This is also the reason why some residential buildings were bombed by the Russians. If Ukrainian President Selinskyi allows this to happen and does not punish it, he is also likely to carry out so-called “false flag” attacks, i.e. attacks under a false flag, possibly even bombing his own nuclear power plants, in order to lay the blame at Russia’s door and trigger the NATO case.

What is really going on in Ukrainian intelligence?

War reporting is often based on lies and propaganda, on both sides, so it is difficult to do truthful and objective reporting. However, the fact that Selinskyi suspended his intelligence chief and childhood friend Ivan Bakanov in mid-July, as well as Prosecutor General Iryna Venediktova and 28 high-ranking employees of the Ukrainian secret service SBU, is very striking and has not been researched much in the Western media so far. There is already a lot of grating in the gears here. Were Selinskyi’s questionable orders not carried out “properly” or what was the reason for the series of dismissals? Selinskyi himself speaks of “unsatisfactory work results” and betrayal. If there was treason, why did this happen? Nothing happens for no reason.

World politics fails: diplomacy falls by the wayside!

It is most regrettable and also incomprehensible that attempts are actually being made to continue resolving the conflict with Russia on the battlefield instead of agreeing on a ceasefire. With the continued sending of heavy weapons and training in heavy weapons, Germany has now also become a party to the war. The USA has been for a long time. More demonstrations on the streets are needed for world peace, because nobody wants a world war. But power-obsessed politicians probably think more of themselves than of the people, who will have to suffer later.

Germany may suffer more from the sanctions than Russia

The German people will still suffer a lot from the sanctions against Russia if too little or no gas is supplied from Russia. But are these really sensible sacrifices for Ukraine if the war does not end with them, but escalates more and more and if it could turn into a world war? Certainly: Russia is the aggressor and Russia started a war against Ukraine on 24 February 2022, which is contrary to international law and cannot be excused or justified by anything. But the current sanctions are counterproductive and may in themselves harm their own people more than Russia in the long run. This self-destructive policy must end immediately.

First grain deliveries give hope for alleviating the famine

At least, with the help of Erdogan and the UN, the first shipments of grain have now been made possible via the seaport of Odessa. Here, 20 million tonnes of grain are now waiting to be shipped out, which is urgently needed, as otherwise there is a threat of famine in some African countries. Erdogan also agreed with Putin in Sotchi on intensified cooperation in the energy sector. Turkey is against the sanctions, which so far seem to be relatively ineffective anyway.

The bloody road to a new world order

The Ukraine war and the Taiwan conflict are about a new world order that is just emerging, namely G7 & Co against BRICS & Co. These conflicts could also be resolved in a bloody way or end temporarily in planned (?) chaos. Everyone should prepare for this now. The problem is that both the USA and China are highly indebted at all levels, but so is the EU. So the interest rate hikes that are now coming will also put a strain on budgets and drive national debt to new heights. Rising interest rates will now also increase the interest burden on the states. War is always very expensive. For Ukraine alone, about 700 billion euros are needed for reconstruction. In addition, there are expensive programmes to combat climate change. Who is going to pay for all this if a country goes into recession? Then there could even be a global financial collapse like in 2008 or even a system crash or a “Great Reset”, which some have long feared.

Central banks fight inflation with interest rate hikes

The world stock markets have so far been relatively unimpressed by the intensification of geopolitical conflicts. Since mid-July there has been a small recovery rally on the world stock markets. Before that, however, the world stock markets also reacted very negatively to “stagflation” (= high inflation of over 9 percent and stagnating economies). Central banks around the world have already reacted with interest rate hikes, led by the Fed with large interest rate hikes of 0.75 basis points. The ECB is lagging behind with its first rate hike in years of “only” 0.5 basis points. This means that the negative interest rate is now likely to disappear for many commercial banks. The stock markets are still plagued by fears of recession and non-functioning supply chains, which would be exacerbated in the event of an attack by China on Taiwan.

World stock markets recover, but still vulnerable to geopolitical risks

If so, the slight recovery since mid-July is likely to prove to be a “bear market rally” and not the beginning of a trend reversal. On the contrary: then the capitulation phase feared anyway by many American investment bankers such as Bank of America looms, which could lead to a stock market crash in autumn. Investors should therefore continue to hold high liquidity positions as a precaution. By Friday, the DAX had recovered by almost 10 per cent from 12,400 to 13,629 index points since mid-July and the S&P index in the USA by 12 per cent from 3700 to 4145 index points. Thus, a minus of more than 20 percent for the DAX turned into a minus of “only” 15 percent and a minus of 13.6 percent for the S&P index from minus 20 percent. Technology stocks in the USA recovered the most, but they also fell the most beforehand. The NASDÀQ Composite Index even rose by 20 percent from 10,500 to 12,656 index points. However, in the event of an escalation of the conflict in Taiwan or Ukraine, there is a threat of further price losses.

Russian ADR/GDR permanently no longer tradable

Holders of Russian ADR/GDR still have completely different worries, as they are now blocked and completely powerless by the nonsensical suspension of trading in Russian ADR/GDR. There is even the possibility of a total loss in the worst case. But here, too, there are first glimmers of hope in the now necessary conversion of the Russian ADR/GDR into original Russian shares. The Russian ADR/GDR are no longer tradable, which means that the London and New York stock exchanges have done investors a disservice without any apparent necessity, because the Moscow stock exchange stabilised when it reopened on 24 March 2022, with the Russian “red chips” even recording price gains in euros or US dollars. Gazprom’s share price on the Moscow Stock Exchange, for example, is the equivalent of €6.3, roughly the same as before the war.

High “windfall profits” for Russian energy companies

Russian energy companies also posted record profits despite the sanctions due to the sharp rise in oil and gas prices. However, Western investors did not benefit, as Russian ADR/GDR were, with few exceptions, suspended from trading altogether. The ADR/GRD programmes have now also been terminated by the Russian companies, so that the ADR/GDR will no longer be tradable. The conversion of ADR/GR into original Russian shares also caused major problems for many banks/brokers, as Western investors now have to disclose a Russian depositary and there were also problems with Clearstream during the transfer.

Now Clearstream will allow investors to convert Russian ADR/GDR into original shares until 15 August 2022. However, the investor must disclose a Russian depositary for this purpose. These could be Citibank Moscow, Gazprombank and the broker Freedom Finance, whereby Freedom Finance also has a branch in Berlin on Kurfürstendamm. An auditor from Potsdam also offers the conversion of Gazprom ADR into original shares for a certain fee.

Registration with Citibank Moscow, Gazprombank (only for Gazprom) or Freedom Finance can be done online. Of course, once the conversion has taken place, it will still not be possible to trade in Russian shares, as foreigners have not been able to trade on the Moscow Stock Exchange until now. However, it is possible that a new market segment for foreigners will be opened after the end of the war or at least after some sanctions have been lifted.

It is easier to do this online via the broker Freedom Finance, but here, too, haste is required, as the account opening at Freedom Finance and the transfer to one’s own custody account at Freedom Finance must be completed by 6 p.m. on 11 August 2022.

Freedom Finance is a broker listed on NASDAQ in New York, but also has access to the Moscow Stock Exchange. Freedom Finance (web; www.freedom24.com) also has a branch in Berlin on Kurfürstendamm.

If your bank/broker has problems converting the ADR/GDR into original Russian shares, please use the following link,
to register with the broker Freedom Finance and open an account there. The account opening is then done online (preferably with a smartphone).

You will need a passport or ID card, a recent bill with your address on it (e.g. electricity or water bill) and then you will go through a verification process online via video/photo.

The following Russian ADR/GDR can then be converted into original Russian shares and held in custody:

ISIN Short Name Type
US6708482095 JSC OGK-2 – GDR REGS GDR
US5838406081 MECHEL, PAO – ADR ADR

The broker Freedom Finance does have access directly to the Moscow Stock Exchange. However, after conversion due to the sanctions, they still have no means of buying or selling the original Russian shares on the Moscow Stock Exchange as foreigners. So initially it is only a matter of converting and holding the converted ADR/GDR. But you can then also receive dividends and “park” them in roubles. It will probably only be possible to trade the original Russian shares after some sanctions have ended. However, you will then also receive the dividends in roubles. If required, an account can also be opened in Russia on a rouble basis.

First inform, then invest

Inform yourself now also in detail about the background and the development of the Ukraine/Russia crisis but also the future recovery potential of the undervalued shares from Eastern Europe. There are also new opportunities in the Baltics, Romania and Ukraine, with the respective stock indices all up in 2019. For example, some Ukrainian agricultural stocks have already more than doubled in price since 2016, and in 2018 the PFTS index was already up over 70 per cent again. Kazakhstan stocks were among the top performers in the world in 2017 (+56 per cent), but not in 2018 and not in 2019, but again in 2020/21.

In 2018, 10 stock markets from Eastern Europe were already among the best-performing stock markets in the world, all of which clearly outperformed the DAX and also the US stock market. In 2019, the Moscow Stock Exchange was once again the clear outperformer among all global stock markets, with a plus of over 46 percent in euro terms. However, the Bucharest Stock Exchange (Romania) also rose by over 32 per cent in 2019. The stock markets in Southeast Europe and also in the Baltic countries remained very stable on the plus side (Croatia +13 per cent). In 2020 year 6 stock exchanges from Eastern Europe were among the 30 best performing stock markets in the world and last year even 11 stock exchanges from Eastern Europe. This year, 5 Eastern European stock exchanges, mostly from the Balkans, clearly outperformed the DAX. After the Ukraine war, it is still worthwhile to look beyond the horizon to Eastern Europe.

Order now a trial subscription (3 issues by e-mail for only 15 €) of the monthly stock exchange letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special as well as with a lot of background information and new investment suggestions such as the “Stock of the Month” and lucrative certificates at www.eaststock.de, there under Stock Exchange Letter. The last EST was published on 26 July 2022.

TV/radio notes: The last radio interview was on 10 May 2022 on Börsen Radio Networks. Also watch the latest EastStockTV video on YouTube about the Ukraine war and the new outperformance opportunities for Eastern European stock markets. You can download the interviews at wwww.eaststock.de, there under the heading “Interviews” as well as the EastStockTV videos. On 5 April 2022, Mr. Männicke gave a lecture at VTAD Hamburg. By the way: have you already subscribed to the EastStockTV YouTube channel?

Also order Andreas Männicke’s free newsletter now with the latest news on the world and eastern stock markets at www.eaststock.de .

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The stock exchanges of Central and Eastern Europe have been among the top performers among the world’s stock exchanges since 1998. In recent years in particular, many CEE stock exchanges have performed far better than the established Western stock exchanges. In 2019, for example, the Moscow Stock Exchange not only clearly outperformed the DAX and DJI, but also ranked among the 30 best-performing stock exchanges in the world.

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