Market Wrap: War worries (Friday 25 February, 2022)
Desperately sorry scenes in Ukraine this week, as Russia invaded, inevitably had a dramatic impact on markets around the world.
Thursday’s sharp sell-off hit hardest in Europe. But US markets actually rallied to finish in positive territory on the day. That feels like it’s setting the scene for a stronger start on Friday, but it remains very unclear how this miserable new chapter will play out.
The big theme of inflation, which has dominated headlines in recent months, might be complicated by what happens now - but again it remains far from clear. Spiking energy prices (oil topped $100 this week) will not help rising input prices for many companies and, inevitably, consumers. It will be interesting to see how and when the long-expected hikes to interest rates will unfold - and whether things will change on that front.
Main Indices
FTSE 100 | FTSE AIM All Share | S&P 500 | FTSE Euro First 300 (ex-UK) | S&P/ASX All Ordinaries | |
1 Week | -2.7% | -4.1% | -3.7% | -4.3% | -3.0% |
1 Month | -0.9 | -6.2% | -1.5% | -5.8% | +2.3% |
1 Year | +9.7% | -14.6% | +11.9% | +8.7% | +4.7% |
Source: Stockopedia, Google Finance
Other Instruments & Commodities
Crude Oil WTI | Gold $ | Bitcoin | |
$95.0 / barrel | $1,918 /ounce | $38,154 | |
1 Week | +4.6% | +0.8% | -6.2% |
1 Month | +11.1% | +3.9% | +3.9% |
1 Year | +59% | +5.8% | -23.2% |
Sources: Trading Economics, Royal Mint, Coinbase
Market Moves
Russia’s domestic stock market was one of the worst hit on the back of the Ukraine invasion. It finished Thursday down 33%, having fallen as far as 45% during trading.
Russia’s MOEX exchange
Source: Trading Economics
The UK trades a number of full-list and dual-list Russian stocks (and others that will be directly or indirectly affected by the Ukrainian action). You can see from the FTSE 350 movers on Thursday how that looked, with Ukraine-based iron ore miner Ferrexpo (LON:FXPO) leading the list of crushed shares. Others included Polymetal (LON:POLY), Evraz (LON:EVR) and Petropavlovsk (LON:POG). Risers were understandably in short supply, but those that did manage an up-day were in gold, oil and defence.
- On a 1-year basis, global large-cap indices all remain in positive territory - but clearly under pressure in 2022.
Global Large Cap Indices
- Small caps, which have already been under pressure in recent months, had another rough week, with UK AIM stocks doing particularly badly.
Global Small Cap Indices
Factor Trends
With inflation already a concern - and the prospect it might now continue for longer - the growth/value switch appears to continue.
With many institutional managers reporting back to their holders in recent weeks, the theme has been pretty clear. It doesn’t change the pain for regular investors holding smaller, more speculative growth stocks, but knowing that even the pros are feeling the pain might be some comfort…
Here are a could of quotes from managers on either side of the pond:
- From Stockopedia’s perspective, the StockRank Style classifications point to strong performances in combined high Quality, Value & Momentum (Super Stocks) in both the US and Australia over the past year.
- By contrast, the US is also seeing solid 1-year returns from Contrarian value (high Quality, strong Value, poor Momentum). But Australia is seeing the opposite, with Momentum Traps (strong Momentum, low Quality, low Value) in positive territory.
- In the UK, the 1-year StockRank Styles performances present a very mixed picture, with Sucker Stock portfolios (low Quality, Value and Momentum) just taking the strongest performance over Super Stocks. We’ll dive deeper into some of these trends in the coming weeks.
Final thought…
Storms Dudley, Eunice and Franklin have swept across the UK in recent weeks, and some of us are still living with the deluge. But does rainy weather have any impact on stock market returns?
Well, it does according to a study by Lei Zhang, an associate professor at the City University of Hong Kong…
Rainmakers: Bad Weather and Institutional Investor Performance assessed the impact of weather on the performance of institutional investors. Does bad weather trigger negative moods and worse portfolio performances? Or does it save money managers from the distractions of the outdoors and help them focus on achieving the best returns?
According to the research, it turns out that bad (rainy) weather does in fact lead to better portfolio returns - across different investors and regions. So as the saying goes, ‘every cloud…
Have a good weekend
Disclaimer
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17 comments
I’m a little bit surprised that I’ve not seen any media commentary so far on whether this has implications for how China behaves. Perhaps there has been some and it’s just that I haven’t seen it.
If what happens in Ukraine makes China think that the West is weak and will not react in a major way to its own expansionary objectives then what happens next? Does China attempt to take over Taiwan (or take back as they would term it)?
If so, how might that hit markets?
Another very good piece on the situation by John Authors of Bloomberg today . Free to subscribe and essential reading in my view .
From an ADVFN thread:
Companies with exposure to Russia
02/24/2022 | 03:15pm GMT
LONDON, Feb 24 (Reuters) - International companies with exposure to Russia are bracing for stricter Western sanctions after Moscow launched a full-scale invasion of Ukraine.
Here's a list of some of the companies, by region:
EUROPEAN COMPANIES:
BASF
The German chemicals maker co-owns Wintershall Dea - one of the financial backers of the suspended Nord Stream 2 gas pipeline - with Russian billionaire Mikhail Fridman's LetterOne investor group. BASF also says it generates 1% of group sales from Russia.
BP
The British oil major is the largest foreign investor in Russia with a 19.75% stake in the country's national oil company Rosneft. It also holds stakes in several other oil and gas projects in Russia.
COCA-COLA HBC
The London-listed company bottles Coke for Russia, Ukraine and much of Central, Eastern Europe. It counts Russia among its largest markets and employs 7,000 people there.
DANONE
The French yoghurt maker controls Russian dairy brand Prostokvanhino and gets 6% of total sales from the country.
ENGIE
The French gas utility is one of five co-financiers of Gazprom's Nord Stream 2.
EQUINOR
The Norwegian company has minority stakes in three Russian oilfields.
GENERALI
Italy's biggest insurer has a minority stake in Russian insurer Ingosstrakh.
HEIDELBERGCEMENT
The German company has three plants in Russia which it says don't export outside the country.
METRO
The German retailer employs about 10,000 people in Russia where it serves some 2.5 million customers and operates 26 stores in Ukraine.
NESTE
The Finnish refiner relies on Russia for two-thirds of its oil needs though it says a significant part of its crude oil purchases are made on spot markets "one load at a time, and therefore we are able to react flexibly to changes in the markets".
NESTLE
The Swiss consumer goods giant had six factories in Russia as of 2020, including plants making confectionary and drinks, according to its website. Its 2020 sales from Russia were worth about $1.7 billion.
NOKIAN TYRES
The Finnish company has a plant and a large tyre warehouse in Russia.
OMV
The oil and gas company is one of the five financial backers of Nord Stream 2 and is Austria's main importer of Russian gas. It has a 24.99% stake in Russian gasfield Juschno-Russkoje.
RENAULT
The French carmaker has a 69% stake in Russian joint venture Avtovaz which is behind the Lada car brand and sells more than 90% of its car production locally.
ROLLS-ROYCE
The British aero-engine maker says 20% of its titanium, used in jet engines, comes from Russia but said the country contributes less than 2% of its total revenue.
SAFRAN
Russia's VSMPO-AVISMA is the French jet engine maker's largest single supplier of titanium though the French company says Russia supplies less than half its requirements.
SHELL
The Anglo-Dutch oil company owns 27.5% of the Sakhali-2 liquefied natural gas project, which has an annual capacity of 10.9 million tonnes and is operated by Gazprom . It's one of the five co-financiers of Nord Stream 2.
TOTALENERGIES
The French oil major is one of the biggest investors in Russia with a 19.4% stake in Russia's Novatek, a 20% interest in the Yamal LNG joint venture, 21.6% of Arctic LNG 2, a 20% stake in the on-shore Kharyaga oil field and various holdings in the country's renewables, refining and chemicals sectors, according to its website.
UNIPER
The German utility has a $1 billion exposure to Nord Stream 2, along with five power plants in Russia with a combined capacity of 11.2 gigawatts, providing about 5% of Russia's total energy needs. Uniper and its controlling shareholder Fortum together own 12 power plants in Russia and employ 7,000 people there.
VOLKSWAGEN
The German carmaker has two factories and around 4,000 employees in Russia. It built around 170,000 vehicles in the country in 2021, a small number compared with the 8.9 million units sold worldwide last year.
ASIAN COMPANIES:
JAPAN TOBACCO
The company employs about 4,000 people at its Russian plants, and its tax payments in 2020 accounted for 1.4% of the Russian Federation state budget, the company said on its website. The former tobacco monopoly relies on the Commonwealth of Independent States, including Russia and Belarus, for about a fifth of its profits.
MARUBENI CORP
The Japanese trading house has four offices in Russia, where it sells tyres for mining equipment and manages a health check-up centre.
MITSUBISHI CORP
The company distributes Mitsubishi Motor vehicles through some 141 dealerships in Russia and has a stake in Sakhalin II gas and oil development project that supplies Japan with liquefied natural gas (LNG) and trades coal, aluminium, nickel, coal, methanol, plastics and other material. It also supplies power plant equipment and other machinery to Russia.
SBI HOLDINGS
SBI Bank, established almost three decades ago, offers corporate services and loans to Japanese companies expanding operations in Russia.
TOYOTA
The company's plant in Saint Petersburg, Russia, makes Camry and RAV4 vehicles, and it has a sales office in Moscow. It has about 2,600 staff, including 26 Japanese nationals, at those locations.
(Reporting by Reuters correspondents, Compiled by Emelia Sithole-Matarise; Editing by Elaine Hardcastle and Jonathan Oatis)
I see that: "BP BP.L said on Sunday it would
exit its 19.75% stake in Russian oil giant Rosneft ROSN.MM
after Russia's invasion of Ukraine, amid growing pressure from
the British government."
Not looking good for Bp (LON:BP.) shares on Monday.
i was confused by Rolls Royce being so heavily down, I'd have expected given it aviation and defence exposure it wouldn't have dipped like it did
Warren East the CEO happened to resign on the same day IIRC
I had accepted that my folio would lose perhaps 5% on Thursday and I would look for low spots to add stock over the coming months as things settled down. I hold 90% FTSE 100 companies that seem pretty solid and pay decent divis. I've never tried to 'trade' just build a long term investment. I was absolutely staggered at the rebound today, it adds to my belief that the whole industry is built on nothing more than hope and prayer, disguised with lot's of analyst puff and charts that resemble a soothsayers tea leaf readings. Of course, there are some boring, fundamental truths about business and economics that have a habit of eventually bubbling to the surface, that's the place to try and make money.
Bad weather may have an impact, the big storm in 1987, also coincided with a market crash, Black Monday. But that was far bigger than the recent storms we have had here recently. But that was worldwide crash but the storm was only in France/UK.
I find it staggering that the UK market has recovered nearly all of yesterday’s losses! The Ukraine situation has got worse and the bounce back seems entirely due to the limited sanctions. This could be a dead cat bounce of mega proportions if additional sanctions are announced over the weekend as the BBC/Media are reporting. It only needs for US economic statistics to indicate inflation is getting worse and tougher sanctions to be implemented and markets will plunge again. Even stocks that have great metrics but no possible link to either factor seem to dive when the rollercoaster heads down again. The current situation is nauseous in many respects!
I think we are just following the US market, which had a large rises, last evening after we closed. My US folio was up 5% yesterday, which one of the highest gains I can remember. I thought there may a lot of profit taking today, but so far most are positive.
Very difficult to predict which way the markets will go.
It's complicated. I have weighted my portfolio towards resource stocks for fairly obvious strategic reasons that have had nothing to do with the Ukraine. But a tightening of commodities markets and sharp price rises there would clearly benefit me overall, notwithstanding I would take some losses outside the resources sector.
Commodities stocks have a big weighting on the UK exchanges too. So war and sanctions may not be all bad news.
[EDIT] I agree, it's going to be a roller coaster ride. Hang on to your hat.
I just think the market is seeing some things now:
1. The sanctions can't be too severe - imagine NATO cutting Russia off from SWIFT then saying, oh buy the way, we still want our gas on time if that is okay! If we really play sanction hard ball, we could be looking at an economic depession in Western Europe.
2. Not many additional arms were taken to the Ukraine in the lead up, not wanting to provoke Vlad, thought he would back away until he did not. Now the flow of shoulder launched anti-tank and anti-aircraft/helicopter missiles into Ukraine will likely be substantial. Takes brave soldiers to operate them, but the Ukranians are already inflicting heavy casualities with their limited resources, Russia is about to regret this.
I also noticed that sucker stocks came out top on the stock rank styles. Seems strange. I'd be interested to know if there are outliers that have skewed the average gain etc.
Sucker stocks not doing quite so well, over more recent periods, down 8% over last 6 months, which implies most of their gains, were in 2020- early 2021. NAPS, which I set up each month since April last year, has generally underperformed the All Share index, some times by over 10%. So I'm not sure Stockopedia is working that well, over the last year.
Looks like it will be a long and nasty slog in Ukraine. Can't see the West going too hard on sanctions, not with their dependency upon Russian gas, not unless they want to trigger an economic depression in Western Europe.
I have repositioned a little. Sold all my CAML, Kazak could well be next on Putin's desire to infuence list, he has already begun interfering in fact. I also sold Plus500, I made some gains, but I seem to have lost my appetitite for higher risk sectors based in higher risk parts of the world, despite their strong returns. I also reduced down Forterra, still looking good but their further share issuing has begun to unsettle me, still a decent holding though, new brick plant comes on stream this year.
LGEN have bought back the shares they issued in 2020 and their March 10 final results look like they will be very strong, large dividend and the tangible equity growth has been very consistent, so I have increased LGEN. I also went back into Bellway despite the cladding row, tangible surplus now a compelling c12%, just too cheap to ignore at this price. Bought a little more ScS and a little more Henry Boot as well.
Have you ever looked at S&u (LON:SUS) ?
4 year average Equity growth of 7.4% + a dividend yield of 3.4% equates to a 4 year Tangible surplus of 10.8% (zero share issuance, zero intangibles).
Also the conservative management have heavily provisioned their loan book, so write backs will likely accelerate Equity growth in the future.
S&U - seems like a decent niche business, they avoided any share issuing during the past 2 years, which is good to see, they could have so easily gotten away with issuing shares in 2020, giving a bit of extra cash but diluting down shareholders, so it would have been a negative, but they chose not to, I like that.
Valuation, assuming that the divi is about to return to pre Covid levels, which seems likely with the earnings recovery then you have a tangible surplus of around 8% of MCap - average annual 4 year tang equity growth + divi, sum expressed as % of MCap. So yes, buy territory, if I were a fund manager looking for 30 to 50 stocks, S&U would probably be in there.
But LGEN has a tangible surplus of over 11% now, probably due to rise to c12% on March 10 results, which is why LGEN would currently get into my very concentrated portfolio and S&U currently would not.
If you were to ask me whether I would expect S&U to beat the overall UK market over the medium to long term (I never try to predict short term price moves), my answer would be an unequivocal yes, S&U is a reasonable buy at this price in my view.