Ukraine - Russia: What It Means for the Market

Written by: Carla O'Shaughnessy | Hargreaves Lansdown

  • Oil price up 2.7% to almost $98 a barrel
  • How sectors would be affected if conflict escalates

As the Ukraine-Russia crisis gains momentum, Steve Clayton, HL Select Fund Manager, looks at what it means for the market and which stocks to consider and avoid.

“Russian troops have not massed along the Ukrainian border in order to hold a cake sale. However this unfolds, tensions and uncertainties are likely to run hot for some time to come. The market will not like any escalation, nor will it trust any settlement between the parties unless accompanied by a rapid demobilisation of Russian forces around Ukraine.

Whenever international tensions flare, money tends to rush toward safe havens and the greatest of these has long been the US Dollar. The Yen could also benefit. Japan has stayed well away from this argument. Cautious money tends to head to the least risky assets, so it looks likely that US Treasuries and JGBs could benefit.

Defence stocks, like Bae Systems could provide safe havens; European politicians are unlikely to urge for lower defence spending whilst the Russian bear is growling angrily. 

Banking shares could come under pressure. Effective sanctions will impact on economic activity and banks will be where it is felt in the West. Lending volumes would be hit too, if tensions really rocket, because cautious consumers and businesses will refrain from borrowing until they feel more confident. 

Travel and leisure stocks are always going to react warily to rising international tensions. Wizz Air, with its large flight network across Central and Eastern Europe stands out here, but other airlines and tour operators like easyJet and Tui will also be impacted.

Times of tension are when defensiveness can pay off. People still have to eat, take medicines and get operated upon. Food retailers and drug companies like Sainsbury and AstraZeneca could be interesting, but Tesco’s exposure to Central Europe will not help. 

Stocks with Russian exposure include BP, where exposure comes via an 19.75% shareholding in Rosneft, which is notionally worth around $12bn, having just plummeted by around 25% in recent days. Hyve Group was built around an exhibitions business in Russia and is still substantially exposed to the Russian economy, but a recent deal to acquire Ascential’s portfolio of shows has at least diluted the exposure.

But perhaps the real message for investors is that in the long run, it rarely pays to worry about the headlines. If it looks as though share prices are coming under pressure, go look for bargains.”

Related: Summit Talk Helps Calm Financial Markets on Edge Over Tense Ukraine Situation