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Stocks to Watch in Europe as Sanctions Rock Russian Markets

Financial traders work at their computers beneath a display of the DAX Index curve at the Frankfurt Stock Exchange in Frankfurt, Germany, on Thursday, Aug. 11, 2011.

(bloomberg)

(Bloomberg) -- European money managers already grappling with the fallout from a looming trade war between the world’s two largest economies didn’t need something new to worry about, but they got it: Russia.

Escalating pressure on Russia has replaced the U.S.-China spat as the topic top of mind for most European traders this week as intensified sanctions unleashed in Washington reverberate from Zurich to Istanbul. President Donald Trump’s fresh measures against Russian tycoons and companies sparked a selloff in the ruble and sent stocks in Moscow tumbling. Tensions were ratcheted higher on Wednesday as Trump warned Russia to “get ready” for missiles fired at Syria in response to a suspected chemical weapons attack.

European equity markets are sensitive to gyrations in Russia because many of its companies have operations there. But some stocks also stand to gain. Take aluminum for example: with sanctions curbing Russian supply, shares in rival producers have surged.

“The bigger question is are we going to see another round of retaliation from Russia and can this escalate -- just the same way we think about the trade war and the current struggle between the U.S. and China?” said Maxime Alimi, head of investment strategy at AXA IM in Paris. “If we stay where we are, which is just extended sanctions from the U.S. on Russia, I don’t think this is going to be systemic.”

Read more here on the sanctions Trump announced on April 6

Here’s what to watch as European equity markets react to the growing storm facing Russia:

Commodities stocks

Aluminum producers are the most obvious winners from the Russian sanctions. The metal posted its biggest six-day rally since 2009 after the U.S. slapped sanctions on United Co. Rusal, limiting supplies. Norsk Hydro ASA has jumped 8.8 percent in Oslo since Monday, set for its best week this year.

For some commodities companies, the impact has been even more direct. Glencore Plc canceled a plan to swap its stake in Rusal for shares in another of Russian aluminum tycoon Oleg Deripaska’s companies, while Chief Executive Officer Ivan Glasenberg quit Rusal’s board.

Turkish stocks

Turkey is particularly vulnerable because it’s sensitive to broader emerging-market sentiment, has troops in Syria and Iraq, while strengthening ties with Russia have tested its relations with the U.S. The country is also at loggerheads with European Union members Greece and Cyprus over territorial disputes in the Aegean and the Mediterranean.

Read more here about potential military strikes on Syria

Vekselberg’s Swiss Empire

U.S. sanctions have pummeled the Swiss empire of Russian billionaire Viktor Vekselberg, who’s among the seven oligarchs targeted by the measures. Some of the biggest Swiss banks stopped trading in Sulzer AG stock. The shares rebounded Thursday after Vekselberg lowered his stake in a bid to insulate the manufacturer, but remain 12 percent lower this week. OC Oerlikon Corp AG and Schmolz + Bickenbach AG, which aren’t subject to sanctions because Vekselberg’s stake is less than 50 percent, have both dropped at least 4 percent since Monday.

Russian Exposure

The ruble has slid 7 percent against the dollar since Friday, at one point touching the weakest since 2016. For European companies operating in Russia, that would dent earnings when they are converted into their reporting currency. The companies would naturally also be vulnerable if sanctions and intensifying geopolitical tensions start to harm the Russian economy.

Read more here about implications for the Russian economy

Here are some stocks to watch:

  • Listed in the U.K.: Highland Gold Mining Ltd., Global Ports Investments PLC, ITE Group Plc
  • Poland: LPP SA
  • Finland: Fortum OYJ, Nokian Renkaat OYJ
  • Denmark: Carlsberg A/S
  • Germany: Henkel AG & Co. KGaA, Stada Arzneimittel AG
  • France: Renault SA
  • Austria: Raiffeisen Bank International AG, Atrium European Real Estate Ltd.
  • Turkey: Enka Insaat ve Sanayi AS, Anadolu Cam Sanayii AS
  • Hungary: Richter Gedeon Nyrt

--With assistance from Blaise Robinson and Tugce Ozsoy

To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen

©2018 Bloomberg L.P.

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