Stock pickers are already positioning for an event that has the potential to shake up markets from Norway to Brazil: the lifting of sanctions on Russia.
Any easing of the restrictions that have isolated Europe’s fifth-biggest economy for nearly three years will be a “shot of adrenaline for the stock market,” according to Luis Saenz, who runs the Russian sales and trading department at BCS Financial Group. The outlook for such a move has rarely looked better than under new US President Donald Trump, who has vowed to restore ties with the Kremlin.
A normalization of relations has repercussions that will reverberate far beyond Russia’s borders, from a fish company that names shipping tycoon John Fredriksen as its biggest shareholder to the world’s largest oil-services company. A senior White House adviser said last week that removing the sanctions is under consideration and Trump and Russian President Vladimir Putin vowed to deepen trade ties during their first telephone call.
The penalties imposed over the Ukrainian crisis, which cover everything from travel restrictions to asset freezes, matter to investors because they limit access to foreign equity and bond markets for some of Russia’s biggest companies. Getting the US to lift its curbs is only half the battle though; the European Union has its own restrictions and may not be so keen to cozy up to the Kremlin.
Here’s a run-down of the potential winners and losers from sanctions being lifted.
After being locked out of international debt and equity markets for almost three years, Russia’s biggest banks will relish the prospect of a return to business as usual.
Sberbank PJSC and VTB Bank PJSC, the only two sanctioned lenders with listed stock, are the most obvious winners, but other banks could benefit from lower borrowing costs, and prospects for a stronger ruble and faster economic growth. Analysts at Morgan Stanley recommend buying Sberbank and London-listed TCS Group Holding Plc, according to an e-mailed research note published in January.
Sanctioned Russian energy majors Rosneft PJSC and Novatek PJSC would gain from a lifting of curbs against issuing debt. US companies that were barred by sanctions from selling oilfield technology to Russia will also benefit, according to Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow.
These include Houston-based Schlumberger Ltd., the world’s largest oil-services company, whose stock has rallied 4.7% since Trump’s Nov. 8 election, as well as Halliburton Co., Baker Hughes Inc. and Weatherford International Plc.
Companies exposed to social media and search advertising would profit from a stronger ruble and a pick-up in consumption, according to analysts at Morgan Stanley, who recommend buying Russia’s favorite search engine, Yandex NV, and Mobile TeleSystems PJSC.
Norway’s seafood industry was one of the biggest casualties of the retaliatory food-import ban Russia imposed on the US and many European countries in response to sanctions. Marine Harvest ASA, the world’s largest salmon farmer, is the stock to watch because Russia’s import ban wiped out 10% of Norway’s salmon market, according to Marius Gaard, an analyst at Swedbank Markets.
Other casualties of the import ban that could be in for a boost if European nations decided to follow the US in easing restrictions include Norwegian seafood company Leroy Seafood ASA, Lithuanian dairy producer Rokiskio Suris, and Polish canned-fish producer Graal SA.
An easing of sanctions could help propel Russia’s nascent recovery from recession, boosting consumer stocks, such as retailers Magnit PJSC, Lenta Ltd. and X5 Retail Group NV, according to Kapital’s Bit-Avragim.
Another beneficiary could be Danish brewer Carlsberg A/S, which got almost half of its profits from Russia before sanctions and the ruble’s devaluation sent the economy into recession.
Caterpillar Inc., the world’s largest maker of construction and mining equipment, could get a marginal boost if it’s allowed to restart the Russian operations it mostly halted in 2014, according to Stanley Elliott, an analyst at Stifel Nicolaus & Co.
Russian exporters will suffer if the lifting of sanctions strengthens the ruble, reducing the local-currency value of goods, according to Kapital’s Bit-Avragim. If the US eases its curbs, the Russian currency would appreciate 5% to 10%, according to a majority of economists polled in a recent Bloomberg survey.
Stocks to watch are MMC Norilsk Nickel PJSC, aluminum producer United Co. Rusal and fertilizer maker PhosAgro PJSC.
Local food producers were the biggest beneficiaries of the food-import ban and will be the biggest losers if international competition returns to the market, according to Kapital’s Bit-Avragim. Ros Agro Plc and Cherkizovo Group PJSC could fall into this category.
Chilean Salmon, Brazilian Meat
Food producers in Latin America which took advantage of the geopolitical fallout in Europe to increase exports to Russia could find themselves facing increased competition again.
Chilean salmon exporters Empresas AquaChile SA and Multiexport Foods SA could suffer, along with Brazilian meat producers, Minerva SA and BRF SA.
News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.