Sanctions Sanctions Sanctions

Sanctions on Russia are causing ripple effects everywhere

Equities 8 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  Today's equity update touches on the EU's new plan to issue joint bonds to fund massive investments in energy and defence adding further short-term tailwind for Europe's oil and gas industry. The sanctions against Russia are causing all sorts of unintended consequences and ripple effects with the nickel market yesterday jumping in a spectacular way due to a massive short squeeze. The rapid rise in nickel and also lithium carbonate prices are putting enormous pressure on electric vehicle makers such as Tesla.


Energy and defence policy in EU takes another turn with joint bonds

The EU announced today a plan to issue massive joint bonds to fund investments in energy and defence which undoubtedly will make it more likely that the EU will succeed in its transition to more energy independence from Russia and a stronger domestic military force. The step is also a move towards a fiscal union in the future. In the UK, Boris Johnson is fleshing out a new energy plan which includes renewed exploration of gas and oil in the North Sea on top of more nuclear and renewable power. The problem is that the North Sea is a mature field and thus it is questionable how much production could be lifted. Oil and gas fracking in Europe has never materialized despite several attempts, but maybe this crisis could put fracking back on the table as short-term solution. We remain positive on the European oil and gas industry and believe they will reap future benefits from EU’s grand ambitions on reforming its energy policy.

Source: Saxo Group

Historic short squeeze in Nickel futures

Sanctions on Russia have also created massive ripple effects in commodity markets and Europe’s banking industry. With Russian assets worth little these days many European banks are no longer having the collateral that they thought for loans provided to Russian oligarchs causing significant margin calls on the Russian elite. The sanctions on Russia have also made it difficult for commodity markets to operate normally and prices are surging across commodities such as natural gas, thermal coal, oil, wheat, and yesterday nickel. The LME benchmark contract on nickel has spiked 250% over trading session with trades briefly touching above $100,000 a ton. LME has suspended trading today and also erased trades executed on or after 00:00 UK time on 8 March 2022; following these erased trades the high yesterday was $55,000 a ton instead of over $100,000 (see chart).

It turns out that a Chinese tycoon had a massive short position in nickel and suddenly faced billions of dollars of losses. While the nickel market will overcome this systemic shock it underscores the unpredictability and unintended consequences of the sanctions against Russia. These price signals should be taken seriously by everyone including equity investors which have still not put the MSCI World Index into a bear market. The fallout in nickel and soaring prices on lithium carbonate are putting enormous pressure on electric vehicles makers including Tesla which shares are down 36% from the peak.

Source: Bloomberg
Source: Saxo Group

International Women’s Day and women in leadership

Today is the International Women’s Day which is an annual event to commemorate the cultural, political, and socioeconomic achievements of women. This year’s theme is called “BreakTheBias” and focus on women’s equality and a world free of bias, stereotypes and discrimination. We are using today’s event as stepping stone for highlighting our Women in Leadership theme basket (see constituents below in the table) which we introduced back in late January. As we described in our introductory note on the Women in Leadership basket women are massively underrepresented among the 2,600 largest companies in the developed world with women only being 14.3% of the daily executives teams (not board of directors) globally. This is shockingly low representation and shows why women have a lot to fight for still in 2022.

NameMkt Cap (USD mn.)Sales growth (%)ROIC (%)Diff to PT (%)5yr return
JPMorgan Chase & Co379,731-2.118.333.561.0
BHP Group Ltd177,24547.140.5-6.1223.4
Investor AB58,064201.339.919.4128.6
Block Inc56,63786.02.384.2472.0
Lululemon Athletica Inc38,60343.936.543.2359.3
Hang Seng Bank Ltd33,470-13.18.121.96.6
DNB Bank ASA31,339-11.010.718.665.1
Koninklijke DSM NV27,53713.58.432.2154.0
Wolters Kluwer NV24,6553.617.611.4150.0
CDW Corp/DE22,27512.721.134.1193.3
Paramount GlobalNA13.115.7NANA
Etsy Inc17,75235.018.656.11,349.6
Woodside Petroleum Ltd23,22993.417.4-4.751.1
Next PLC10,09621.727.244.573.4
REA Group Ltd12,13833.832.826.2145.7
Xero Ltd10,31719.71.344.0458.8
Booz Allen Hamilton Holding Corp11,5853.317.84.3155.0
FinecoBank Banca Fineco SpA8,2387.822.336.5140.7
CapitaLand Integrated Commercial Trust10,23376.33.913.440.5
Ascendas Real Estate Investment Trust8,60916.95.218.450.9
Jazz Pharmaceuticals PLC9,57430.92.128.416.6
Tenet Healthcare Corp9,23510.512.916.4323.7
Castellum AB7,1945.82.821.7109.0
Bright Horizons Family Solutions Inc7,68615.95.719.387.1
GDS Holdings Ltd7,54637.41.277.3407.0
Stockland6,919-2.44.620.616.0
ASR Nederland NV5,45229.615.330.079.2
Orion Oyj5,900-3.427.66.7-3.0
Crocs Inc4,26766.9173.6134.6942.2
Minth Group Ltd3,37319.810.3100.7-1.2
Aggregate / median1,028,90218.315.526.2128.6
Source: Bloomberg and Saxo Group

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