Investors on a knife-edge over Russian stocks

 

After Donald Trump slaps sanctions on companies with links to the Kremlin

Now is a difficult time to be an investor. Nursing wounds from the tech sell-off and a fall in stocks over fears of a trade war between the US and China, a new Beast from the East threatens to damage portfolios.

Donald Trump’s decision to slap sanctions on Russian oligarchs and companies with links to the Kremlin is stoking tensions in what are already nervous global markets.

And fears are growing that the tough measures imposed on Vladimir Putin’s cronies could have a disproportionate effect on Britain, given the City’s deep ties with Russia.

Roman Abramovich has lost £250m in the past seven days as shares in  Evraz plunged by 12.9%

Roman Abramovich has lost £250m in the past seven days as shares in  Evraz plunged by 12.9%

While the sanctions only bar US citizens from doing business with Russian firms, UK investors are understandably worried.

The situation is so serious that the City watchdog has launched an emergency investigation to determine how the sanctions will affect UK-listed firms – and experts say investors here will almost certainly feel some pain in the coming weeks.

Russ Mould, of broker AJ Bell, said: ‘It’s not clear what the rules are if you are not a US citizen and dealing with a Russian company, but certainly the message from the US is: you are doing so at your own risk.’

Oil behemoths BP and Royal Dutch Shell have important links with Russia. BP owns nearly a fifth of Rosneft, the Kremlin-controlled oil company, while Shell co-owns the Sakhalin-2 project with Moscow-based gas firm Gazprom on the country’s eastern border.

And mining giant Glencore owns nearly 9 percent of Rusal, the world’s second-largest aluminium producer which was banned this week from storing goods in the London Metal Exchange’s warehouses.

Ashley Kelty, an oil and gas analyst at Cantor Fitzgerald, said: ‘There will be an impact in terms of the share price and people will be concerned about whether BP will be forced by politicians to reduce its stake. However, I don’t think the sanctions in Russia will be a problem for Shell as it is such a vast company.’

Tom Becket, chief investment officer at Psigma Investment Management, believes BP and Shell could even be boosted by the US sanctions. ‘They have encountered these sorts of risks before,’ he said.

A surge of Russian firms have listed on the London Stock Exchange in recent years.

Evraz, the steel giant controlled by Chelsea Football Club’s billionaire owner Roman Abramovich, has seen its shares plunge 12.9 percent in the past week, even though it is not under sanction. It means Abramovich, who owns nearly a third of the firm, has personally lost more than £250 million in the past seven days.

 

Glencore, the mining giant, owns nearly 9 per cent of Rusal
Glencore, the mining giant, owns nearly 9 percent of Rusal

And there are plenty of other firms with dual-listings in both Moscow and London, such as mobile phone operator Megafon, Rosneft and gas producer Novatek.

It’s these firms that are expected to feel the heat most as tensions grow between the Cold War rivals.

After all, it would be far easier for the Kremlin to assert control over these than over UK companies such as BP and Shell.

There are many British firms listed on the FTSE 100 that have large presences in Russia.

Unilever has a number of manufacturing sites in Russia while Diageo makes its Smirnov vodka there. Pharmaceutical giant Astrazeneca opened a £157 million drug making and packaging plant in the Kaluga region in 2015. While it is unlikely any retaliatory strike would directly impact these firms, it cannot be ruled out entirely, experts say.

However, Jason Hollands, of investment firm Bestinvest, said: ‘The Russian economy has been struggling badly, partly because it is so heavily exposed to oil prices, but also because of economic sanctions put in place since they snatched Crimea.

‘They recognise that if they start taking assets off Western companies, it would only exacerbate the economic problems they are facing.’

Read more: http://www.thisismoney.co.uk/money/investing/article-5613547/Investors-knife-edge-Russian-stocks-Donald-Trump-sanctions.html#ixzz5ClsFPwcM
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