Thursday , 8 December 2022

How Will Sanctions Against Russia Impact Your Portfolio?

These are turbulent times for investors as the situation is changing every day and markets are subsequently trying to digest the new information into stock, commodity and asset prices. As such it is imperative that you…understand how the situation may affect companies in your portfolio and on your watchlist and to keep an eye on any press releases directly from your companies of interest.

…The Russian stock market was down over 18% in its last 7 days of trading (it has been closed now for 5 days and could remain closed for some time to come), and went down 33% over the last 3 months, driven by severe selling from institutional and retail investors exposed to that market from abroad.

The shock of the invasion of Ukraine has prompted governments and financial institutions around the world to impose sanctions and pressures against Russia and they have that trickled down to publicly traded companies, which seem to have followed suit and decided to either slow or stop cooperation with the Russian market….Many are acknowledging that these actions can cut both ways, but also state that it is a price worth paying in light of the current situation.

Among many other industries, players in the energy, auto and aviation space have made changes to their business relations with the Russian economy.

Energy

  • BP p.l.c. ( LSE:BP) announced that they will be exiting their 19.75% stake in Rosneft Oil ( LSE:ROSN).
  • Shell ( ENXTAM:SHELL ) said it will exit all Russian operations, while ExxonMobil ( NYSE:XOM ) will exit only those it values above US$4 billion.

Auto

Russia’s biggest import are cars, which predominantly come from Japan and Germany.

  • Toyota (TSE:7203 ) is shutting down production and sales in Russia indefinitely.
  • German auto-manufacturers such as Bayerische Motoren Werke (XTRA:BMW), Volkswagen  (XTRA:VOW3 ), Mercedes-Benz Group ( XTRA:MBG ) have halted activities in Russia.

Aviation

  • Boeing ( NYSE:BA ) and Airbus ( ENXTPA:AIR ) have suspended most operations in Russia.

In a way, this is the first major anti-globalization wave the world has experienced in many years. The length and severity of these sanctions from governments and measures by companies themselves will likely be highly correlated with the length and severity of the conflict and the nature in which it is eventually resolved.

Commodities

  • Crude oil and other commodities have spiked since the start of the conflict as buyers have avoided Russian supply given fears around sanctions and logistical issues.
  • …Russia produces about 10% of the world’s oil and this sent the price of Brent Crude Oil to a 14 year high of $117, although it’s now trading at around $110/bbl per barrel.
    • JP Morgan expects that $185/barrel could be a possibility…[and] this would positively impact those stocks that are related to oil production, since they largely already have a fixed cost base on the commodities they produce (oil wells, platforms, rigs, etc.), and their bottom line (profit) benefits greatly from every additional dollar increase in the price of the commodity they’re producing.

Conclusion

  • It’s important to remember that energy does move the world, and the world’s current sources are primarily from the burning of fossil fuels.
    • Everything from logistics and food production to travel and the creation of plastic relies on oil, which is why it’s so important to be aware of the consequences of high oil prices and how it impacts investors and consumers.
    • It’s worth watching the energy industry, and investigating what companies might benefit in the short term (as many countries scramble for current solutions) and what companies might benefit in the longer term (as companies and governments invest in energy projects like renewable energy, etc.).

As investors, it’s important to try and think long term rather than week to week, because during turbulent times there are largely varying opinions of what might occur for these assets investors are trying to value.

The above version of the original article from simplywall.st was edited [ ] and abridged (…) to provide you with a faster and easier read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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