Summary: With Global economies and companies blocking Russian trade after its military invaded Ukraine, Commodities once heavily sourced from Russia are seeing huge price jumps. The wheat price is up 10%, lifting grain stocks, while the oil price is up about 1%. Meanwhile, shift to green energy has reignited again, with investors buying heavily into clean energy stocks, like uranium business Paladin Energy, and ASX lithium giant Allkem. Meanwhile, the list of companies halting Russian grows with BP, Shell, Harley Davidson, and GM also making a stand. While pressure mounts on indices makers MSCI and S&P Dow Jones Indices to remove Russian companies, meaning global and emerging market ETFs could face rebalancing, which will cause further market volatility. Considerations and trading ideas below.
Co-written by Market Strategists Jessica Amir in Australia and Redmond Wong in Hong Kong.
What’s happening in equites markets?
- In the US on Monday investors awaited the outcome of Ukraine Russian talks (so the Nasdaq 100 (USNAS100.I) rose 0.4% while the S&P 500 (US500.I) fell 0.24%). However since talks took place, with no breakthrough made and Ukraine’s president opening entry to foreign war volunteers and urging no fly zones, the US futures turned red, indicating a negative open on Tuesday.
- Today the commodity rich Australian market moved very differently to global equities again, and the ASX rose for the third straight day, with ASX200 (ASXSP200.I) up 1.2% at 2.30pm Sydney time Tuesday. The mood has changed of late and now riskier assets, like tech and property stocks are back in fashion in investors’ minds, given the RBA is not expected to rise interest rates until in August (instead of May), given 'the war in Ukraine’ is grossly stoking up inflation, and is a major source of uncertainty, at a time when Australia is grappling with flooding. So Australia’s tech sector could possibly be poised to rally up. The technical indicators also look interesting for the tech sector too, suggesting its sector is oversold. Aussie tech stocks are down 28% from their highs and have been heavily sold from November last year. ASX stand out stock today include Block (SQ2) formerly Square rising 13% after the price of Bitcoin rose back to two month high neighbourhood. Note, Block (SQ2) makes 57% of its revenue from Bitcoin. And as at today, SQ2 is now the 7th biggest stock in Australia. That’s right. A company that makes most of its revenue from crypto is bigger in size than ANZ (ANZ), Macquarie (MQG) and Fortescue (FMG). While iron ore heavy weights Rio (RIO) and BHP (BHP) are the biggest stocks on the ASX and have both risen about 30% from November each after the iron ore price started to rebound, ahead of China buying more of the key steel ingredient. Behind the iron ore come back kings is Commonwealth Bank (CBA), the third biggest stock on the ASX. CSL (CSL) is the 4th and National Australia Bank (NAB) and Westpac (WBC) follow.
- In Asia, Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) opened modestly higher this morning. China’s manufacturing and services sector readings as measured by PMIs, came in stronger than expected. February Manufacturing PMI rose to 50.2 (vs. consensus 49.8, January 50.1). Non-Manufacturing PMI also rose to 51.6 (vs. consensus 50.7, January 51.1). February Caixin China Manufacturing PMI rose to 50.4 (vs. consensus 49.1, January 49.1). Li Auto (02015) surged over 9%, after having reported stronger than expected earnings and margin growth. In Singapore, the Straits Times Index (STI) rallied 1.3% this morning. Major banks in Singapore, Asia’s largest trading hub for energy and commodities, announced putting restrictions on financing for those trades involving Russian oil and basic materials.
What to consider?
- Is it time to look at stocks that benefit from increased defense spending? It’s worth nothing Australia, the United States, and several European nations, including Germany all drastically increased their military spending to support Ukraine fighting against Russia . US President Joe Biden approved $350 million worth of US weaponry, while Germany increased its military spending to above 2% of GPD. This is a historical shift and means equities in these sectors could benefit over the longer term. Defense stocks to look at include defense company Northrop Grumman Corp (NOC),and Lockheed Martin Stocks (LMT) which is the largest US defense stock by revenue. Raytheon Technologies Stock (RTX) is a missile-defense system company. General Dynamics (GD) is a top defense shipbuilding company. Huntington Ingalls Industries (HII) is the largest military shipbuilder in the US, and Austal (ASB) is Australia’s largest defense shipbuilding company. Other stocks to look at include IT government defense company CACI International (CACI). Meanwhile, also consider Boeing (BA) a leading provider of fighter aircraft. For other global stocks in the Defense sector, have a look at the stocks Saxo monitor. Head to Click here for a look at the stocks.
- In Hong Kong & the China A share market:s Chinese assets, including the renminbi, Chinese Government Bonds, and equities are reportedly receiving safe-haven capital inflows. Renminbi was making new high, trading below 6.31 against the U.S. dollar, last seen in 2018. In A shares, ports, Russian trade, and , Cross-border Interbank Payment System (CIPS) related stocks surged recently. China launched CIPS in 2015 to promote international payments in RMB. In addition to the monetary policy divergence widely expected, sanctions on Russia have raised expectations on potential diversion of Russian energy and commodity trades to China and to be settled in the renminbi.
Upcoming company earnings calendar
- Hong Kong & China A Shares: Mar 1: Baidu (09888), NIO (NIO). Mar 2: Techtronic (00669), GCL-Poly (03800), JD Logistics (02618), Smoore (06969)., Mar 3: Bilibili (09626), Weibo (09898), Trip.com (09961), Wharf Real Estate Investment (01997)
- In Singapore: Feb 28: Jardine C&C (C07), Olam (O32), UOL (U14). Mar 2: Netlink NBN (CJLU). Mar 3: Jardine Matheson (J36), Hongkongland (H78), Yangzijiang Shipbuilding (BS6)
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