Interactive Investor

Where the hot money’s been going this week

3rd March 2022 13:34

Graeme Evans from interactive investor

As the situation unfolds in Ukraine, investors have been busy moving their money around between assets. Here’s where the main activity has been and the thinking behind it.

Protection for investors against market volatility continues to come from commodities after fresh surges in the prices of key metals lifted shares across the mining sector.

Four of the five biggest risers in the FTSE 100 index since Russia’s invasion on 24 February are from the resources sector, with Antofagasta (LSE:ANTO), Glencore (LSE:GLEN), Rio Tinto (LSE:RIO) and Anglo American (LSE:AAL) all trading 13% or more higher in the past week.

They are joined by BAE Systems (LSE:BA.), which surged on Monday after Germany pledged to significantly ramp up defence spending in the wake of the Ukraine situation.

Outside the top flight, Ministry of Defence research supplier QinetiQ (LSE:QQ.)and defence countermeasures specialist Chemring (LSE:CHG) are up 20% and 31% respectively. Cyber security business Darktrace (LSE:DARK) leads the FTSE 350 overall with a gain of 46.6%, having risen 15% today on the back of increased 2022 guidance and as companies look to shore up their IT defences.

London’s reliance on the commodities sector means the FTSE 100 index is currently 2.5% stronger than where it was at the end of last Thursday’s weak session. That’s well ahead of indices in Paris and Frankfurt, which remain in negative territory, and broadly in line with the showing for US markets, where trading in growth-focused stocks had earlier been hit by interest rate fears.

The inflation pressures behind those jitters built significantly in the past week, but as the economic outlook has also deteriorated some of the steam has come out of rising bond yields.

The FTSE 100 is still 1.5% lower than where it was before the invasion, but Paris and Frankfurt are down 4.4% and 5.2% respectively.

Fears of disruption to Russian exports and an ongoing move towards self-sanctions by refineries and energy customers means oil prices have risen from $90 a barrel in mid-February to a near-decade high of $118 a barrel earlier today. Harbour Energy (LSE:HBR) has been one of the beneficiaries, with shares up 15% in the past week in the FTSE 250.

Aluminium futures are also at a fresh high above $3,700 a ton as Russia accounts for 6% of the world’s supply, while copper has tested recent records after lifting another 2% today.

There have also been gains for nickel and iron ore and the price of coal has jumped by a third amid expectations that countries including Germany will fire up mothballed power stations so they can avoid using Russian gas.

Glencore, which produces copper, cobalt, zinc, nickel and ferroalloys and also markets aluminium and iron ore from third parties, was one of the biggest risers in the FTSE 100 index today as shares lifted 27p to 479.6p. Anglo American added 148p to 4,077p.

Their performances highlight why UBS Global Wealth Management yesterday recommended that investors consider using commodities as a “geopolitical hedge”.

Chief investment officer Mark Haefele said: “The supply of commodities from Russia and Ukraine has already been disrupted.

“Sanctions could further indirectly impact a range of commodities including natural gas, palladium, crude oil, wheat, fertiliser (nitrogen and potash), and industrial metals (mainly aluminium, nickel, and copper).

“While in our base case we don’t expect the impact to be sufficient to significantly impact global growth, the potential for further disruptions makes a broad commodity exposure an effective geopolitical hedge for portfolios.

“We also see commodities as offering an attractive source of returns against a backdrop of accelerating growth, persistent inflation, and higher rates.”

Russia-based stocks, meanwhile, continue to see extreme levels of volatility as more City investors dump their exposure to these companies.

Precious metals firm Polymetal International (LSE:POLY) today lost another 100p – a third of its value - to stand at 206p, which compares with 1,097p just over a week ago. Steel producer and mining company EVRAZ (LSE:EVR)and FTSE 250-listed miner Petropavlovsk (LSE:POG) have also endured heavy losses but saw some buying interest today.

Meanwhile, 27 stocks with secondary listings or trading instruments in London have been suspended by stock exchange bosses to reflect the impact of sanctions. They include Lukoil (LSE:LKOD), Fix Price (LSE:FIXP), Sberbank (LSE:SBER) and Rosneft (LSE:ROSN).

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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.