. Last Updated: 07/27/2016

J.P. Morgan Unnerved By Politics

LONDON -- U.S. investment bank J.P. Morgan said Tuesday it had cut its allocation of Russian debt in its model emerging bond portfolio to neutral from overweight, citing fears of new political surprises. Russian debt had a torrid time last week after the arrest of Mikhail Khodorkovsky, former head of energy giant Yukos, on fraud charges.

Many Russia analysts believe the prosecution of senior Yukos officials to be politically motivated. Khodorkovsky had given money to the Yabloko and Union of Right Forces political parties. These are rivals to the United Russia party, which supports President Vladimir Putin.

Russia is in an election period, with parliamentary elections in December and presidential elections in March.

"We move Russia to marketweight from overweight as we anticipate further unnerving changes in the government in November. We also believe that Moody's Investors Service was premature in giving Russia investment-grade status," said the bank.

Following Khodorkovsky's arrest, Alexander Voloshin, the Kremlin chief of staff, resigned. Voloshin was perceived to be close to the so-called "oligarchs" -- a group of billionaire businessmen who made most of their money through 1990s privatizations.

Many of these privatizations were viewed as suspect at the time, but Yukos is now regarded as one of the most transparent companies in Russia. Moody's Investors Service raised Russia's long-term foreign currency debt rating to Baa3, its lowest investment-grade rating, at the start of October.

Russia's benchmark 2030 dollar bond has fallen 4 percent in value since the country was made investment-grade. That bond traded at 93.75 percent of face value, up 0.25 points, early Tuesday.