JPMorgan's Withdrawal from Chery IPO Signals Geopolitical Risks in Emerging Markets

The decision by JPMorgan Chase to avoid underwriting Chery Automobile’s upcoming 2025 IPO underscores a growing divide between Western financial institutions and companies with ties to sanctioned Russian entities. This strategic retreat highlights the escalating geopolitical risks for investors in emerging markets, particularly those intertwined with China’s expanding influence in Russia.

JPMorgan’s Clean Break from Russia

JPMorgan’s exit from Russia has been deliberate and costly. Since March 2022, the bank has systematically wound down its Russian operations, including halting services for Gazprombank’s U.S. dollar accounts and writing off $1.46 billion in Russia-related assets by 2023. Legal risks loom large: a Russian court’s April 2024 order to seize $439.5 million of JPMorgan’s assets—stemming from frozen funds under U.S. sanctions—exemplifies the peril of lingering ties. By avoiding Chery’s IPO, JPMorgan aims to sidestep further exposure to entities indirectly linked to Russia, even at the cost of missing out on a potentially lucrative deal.

Chery’s Russian Gambit

Chery’s deepening involvement in Russia since 2023 has made it a prime example of China’s strategic pivot to fill the vacuum left by Western automakers. By late 2023, Chery’s market share in Russia had surged to 61%, with revenues soaring 800% since 2021. Key partnerships, such as its joint venture with Russian firm Sollers to localize 70% of vehicle components by 2025, have bolstered its dominance. However, these ties carry risks: Chery’s reliance on sanctioned Russian entities like Avtovaz and its use of SKD (semi-knocked-down) imports—now penalized by Russia’s 70–85% recycling fee hikes—expose it to geopolitical headwinds.

Why Investors Should Heed the Warning

JPMorgan’s withdrawal signals a broader trend: Western banks are prioritizing compliance over opportunity in sanctioned markets. For Chery, this means potential IPO underwriters may demand higher risk premiums or outright refusal, raising funding costs. The ripple effects extend beyond Chery: Chinese firms reliant on Russian supply chains or partnerships now face scrutiny from global investors.

Moreover, Chery’s strategy in Russia—balancing SKD assembly with selective localization—may no longer be sustainable. By 2025, Russia’s 15% import tariffs and localization mandates have forced Chery to consider direct investments in factories, a move it has delayed due to sanctions exposure. The Russian government’s push for 1.6 million locally produced vehicles by 2035 further complicates Chery’s calculus, as deeper commitment could amplify geopolitical risks.

Conclusion: Geopolitics Trumps Growth

JPMorgan’s avoidance of Chery’s IPO is a stark reminder that geopolitical risks now outweigh short-term financial gains in emerging markets. With Chery’s Russian revenue accounting for 50% of its ex-China sales in 2023 and its market share peaking at 61%, the company’s growth hinges on navigating a precarious balancing act. Investors must weigh Chery’s dominance in Russia against escalating sanctions, fluctuating tariffs, and the likelihood of Western financial institutions continuing to distance themselves from sanctioned regions.

The data is clear: JPMorgan’s $1.46 billion write-off and Russia’s asset seizure of $439.5 million illustrate the cost of geopolitical missteps. For Chery, the path forward requires either full-scale localization (risking Western sanctions) or a pivot away from Russia—a choice that will define its IPO prospects and long-term viability. In an era where borders and alliances shift rapidly, the lesson is unambiguous: emerging market opportunities come with strings attached, and the strings are now made of sanctions.