The headlines across all the national and international news services yesterday morning warned of the prospect of war while all the financial publications, online and off, warned about the market chaos that would result of this war.
Same global picture
The Moscow Times on the other hand took a different angle, with a headline of ‘Putin Sees No Political Future for Yanukovych’ [the ousted Ukrainian President Viktor Yanukovych] alongside ‘Investors Unfazed by Ukraine Conflict’.
But where to invest?
Chances are that by the time you read this, things will have developed but – now here’s the commentator’s curse – I doubt there will be all-out war and you know that behind the scenes steps are already being taken to avoid military conflict.
This also means that investors can start to look at the whole issue as, hopefully, a short-term concern and start to make decisions today on the investment winners and losers of tomorrow.
But, getting stock-specific, BP and Shell had already been tipped by City AM’s Elizabeth Fournier, as two of three stocks that stand to “lose big from the escalating market chaos” thanks to its tie up with Russian state-owned businesses.
Another oil crisis
BP, for example, owns nearly one-fifth of state-owned oil company Rosneft whose share price rose by nearly 2% during the course of yesterday though it had lost 4% on Monday.
In turn, Shell is exposed through a number of business links to firms in Russia and the Ukraine – Gazprom and various shale deals included – and the uncertainty is arguably affecting them more negatively than its FTSE 100 oil cousin.
However, looking outside the oil majors, is there is greater reason to be positive?
James Butterfill, global equity strategist at Coutts, admits that those companies most vulnerable to an ongoing crisis are the oil majors although he does say: “The crisis in Crimea has all the potential hallmarks of an oil-price shock, which makes this a good time to buy oil companies cheaply. This would also provide a hedge against higher oil prices should the crisis escalate.
“Not surprisingly, the sector that tends to do best during an oil supply shock is the energy sector.”
So good news then?
Energy sapping
“However, what’s noteworthy this time is that energy companies have been unloved – they underperformed the rest of the market for much of 2013. This is partly because progress in finding a balance between growth and capital returns has been slow for oil and gas companies, and oil prices had been moderating.”
Apparently not…
Butterfill is still bullish on energy shares, particularly in Europe, but the problems in Russia may lead to an even wider, global fallout across the markets.
Russia’s currency and stock markets have fallen dramatically and its central bank has hiked interest rates as a result; energy prices – in the short term at least – spiked which could push up the price of petrol and therefore inflation across the developed world; gold continues to rise and the share price of its miners also jumped as it is still perceived by many to be ‘safe’.
I started writing this article trying to look for the positives in the chaos, but this could be one instance where any investment connected directly to a potentially Vladmir Putin-led Ukraine, will suffer.
