The unpredictability of armed conflict in Ukraine has put investors owning London-listed Russia-focused stocks in a difficult position. We look at the current situation, how investors have been affected and what they can do about it.
Russia’s invasion of Ukraine on 24 February has caused a humanitarian disaster, but there have been severe economic consequences too.
Much of the impact has been felt in Russia itself as foreign governments, rather than fight with troops and weapons, wage an economic war against Russia with a far-reaching package of sanctions.
Russian flights have been banned from airspace over the European Union, the US, UK and Canada, oil and gas imports have either been banned or are being phased out, and Russian banks have been excluded from the Swift interbank messaging system.
Individuals have been targeted too, among them political figures, corporate executives and wealthy oligarchs like Chelsea FC owner Roman Abramovich. And many Western companies have suspended business in Russia, among them BP (LSE:BP.), McDonald’s (NYSE:MCD), Apple (NASDAQ:AAPL), Coca-Cola (LSE:CCH), Netflix (NASDAQ:NFLX) and Starbucks (NASDAQ:SBUX).
Ostracising Russia and the impact on supply of commodities like oil and wheat has massive repercussions for all of us, but it has also had significant consequences for companies that do business there.
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A case in point is EVRAZ (LSE:EVR), a Russian multinational steel manufacturer and mining company, whose shares were traded on the London Stock Exchange. Two weeks after the invasion, the UK regulator temporarily suspended the shares “in order to protect investors pending clarification of the impact of the UK sanctions”.
Raven Property Group (LSE:RAVP), an owner of warehouses in Moscow, St Petersburg and elsewhere, also asked for its shares to be suspended due to an “inability to accurately assess its current financial position.” It wants to transfer the business to a Cyprus-based company controlled by its Russian management team. “Sanctions have made it impracticable for the business to continue in its current form,” the company said. Shareholders will receive a circular regarding this and the delisting of its shares in London.
Evraz shares had fallen 66% since the beginning of the war and Raven 67%. Other stocks have fallen dramatically, too, among them Polymetal International (LSE:POLY), down 86% and Petropavlovsk (LSE:POG), down 80%.
FTSE Russell, compiler of the FTSE 100 and other major stock market indices, had significant concerns about “insufficient institutional liquidity and market depth”. This made it too difficult for index trackers to replicate equity indices, causing FTSE Russell to exclude these four stocks from all FTSE Russell indices from 21 March 2022.
The Moscow Stock Exchange, meanwhile, closed for a month from 25 February, reopening on 24 March*. While the exchange was shut, funds with a large amount held in Russia were unable to sell stocks to meet investor withdrawals. This led to a flurry of fund suspensions. When a fund is suspended investors cannot buy or sell.
- Russia crisis sparks fund suspensions
- The funds, investment trusts and ETFs with exposure to Russia
- BP’s $25bn decision to cut Rosneft ties
What does all this mean for UK investors?
Evraz shares are currently suspended until further notice, so shareholders cannot sell their shares and other investors cannot buy them. This is likely to remain the case at least until sanctions are withdrawn. What happens if that occurs remains unclear and will likely depend as much on politics as anything.
If trading in the stock resumes, one would assume the Russian economy will be functioning more normally again and that Evraz itself will be free to trade with the West. Given the suspension price factored in a lot of bad news, it is possible that the shares will appreciate in value when they begin trading again, but only as long as the underlying business remains intact. There are still an awful lot if unknowns involved here.
For gold and silver producer Polymetal International and other companies with assets in Russia, the immediate future is also uncertain. Investors are split into two camps - those who fear an escalation of the conflict in Ukraine, and those who believe a peace deal will pave the way for the eventual withdrawal of sanctions and a return to more normal business.
What’s happened to Russia-focused stocks demonstrates the risk associated with owning any share. Typically, the more risk someone is willing to take, the higher the potential rewards. At one end there’s cash, which is low risk, but returns are low too. Near the other end is buying and selling shares, which carries greater risk whatever the geopolitical situation. At the extremes, you might make a significant profit, or you could lose everything. Be prepared for both.
There are ways of mitigating risk. You can diversify your portfolio, focus on less volatile sectors like utilities, or put your trust in a professional manager and buy a fund or investment trust.
Be prepared to hold your investments for the long term, typically five years or more. There are occasions when you might wish to trade a share and own it for a short period of time, but share prices naturally fluctuate, so committing to longer-term ownership helps you ride out that ebb and flow.
It’s often not necessary to check your investments every day, but when markets are moving fast or there’s a significant event like Ukraine, it pays to know where your portfolio is exposed. If you understand that, you can act accordingly, either sell, buy more or do nothing.
*article updated on 1 April 2022
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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