6 months ago • 4:31 mins
There are a few obvious ways investors are positioning themselves amid the crisis in Ukraine: weapons manufacturers like Lockheed Martin could benefit from more military spending, while oil companies like Exxon Mobil could do well out of higher energy prices. But there are also markets you might not have realized could be impacted by the Russian invasion. That’s what I have for you today.
Ukraine and Russia represent about a third of global wheat exports between them, as well as 20% of global corn supplies. If agricultural commodities were added to the West’s list of sanctions, or if military action disrupted their trade routes, the global supply would take a hit. And given how robust demand for agricultural commodities is expected to be going forward, that could send prices soaring. Invesco DB Agriculture Fund (ticker: DBA, expense ratio: 0.93%) could do very well out of that scenario.
The European economy is heavily exposed to escalating tensions in the regions, given its reliance on Russia to meet its commodity needs. Higher energy prices will impact consumer spending in the region, while an economic slowdown in the region would be likely to hurt the euro. The Japanese yen, meanwhile, tends to benefit from periods of risk aversion. Selling the pair means you’ll bet against the euro and in favor of Japan’s safe-haven currency.
European corporate bonds aren’t just offering a lower yield than usual, they’re also more exposed to interest rate risk. So any deterioration in financial or economic conditions could significantly increase the risk that companies will default and bond prices will tumble. So you might want to short (via exchange-traded funds, contract for difference, or by buying put options on) the iShares € High Yield Corp Bond UCITS ETF (ticker: IHYG), which holds the debt of some of Europe’s riskiest companies.
Germany is responding to Russia’s aggression by halting Nord Stream 2 – the promising but controversial natural gas pipeline linking the two countries. And while it’ll likely get its gas from other regions in the short term, Germany might opt in the longer term to replace Russian exports with renewable sources of energy. This could prove to be a turning point in the adoption of greener sources of energy across Europe.
As for where to put your money, this is a more difficult one, as different companies could benefit depending on which type of energy Germany uses. But you can gain broad exposure through the Lyxor MSCI New Energy ESG Filtered (DR) UCITS ETF (ticker: NRJ, expense ratio: 0.6%), which is trading at an appealing entry point after its latest correction.
Air travel could take a knock if Russia bans flights over its (expansive) territory, which could put downside pressures on airlines. But there could be an even bigger loser: aerospace manufacturers, whose supply chains rely on Russian exports of titanium. Russia could play hardball and decide to ban this strategic export, which could raise the cost of producing airplanes and put significant pressure on aerospace companies’ margins – not to mention their share prices. You can bet against them by shorting (or buying put options on) shares of Boeing (ticker: BA), which relies heavily on Russian titanium producer VSMPO-AVISMA – an offshoot of state-owned company Rostec.
The demand for fertilizers has followed the massive rally in global agricultural prices closely (the more money farmers make, the more they can invest in fertilizer). Then consider that Russia and Belarus are the world’s largest producers of potash fertilizers, meaning a conflict-induced disruption in supply could be on the horizon. It’s the perfect cocktail for soaring fertilizer prices, and The Mosaic Company (ticker: MOS) – the biggest fertilizer producer in North America – could be a big beneficiary. Its earnings have grown quickly over the past few quarters, and the company is still valued at only 7x its EBITDA. No wonder it’s recently been upgraded to a “buy” by several analysts.
Most banks have kept their operations in Russia to a strict minimum, but three European banks have pretty major exposure: France’s Société Generale (ticker: GLE, operating in the country under the name Rosnef), Austria’s Raiffeisen Bank (ticker: RBI), and Italy’s UniCredit (UCG). Of those, Raiffeisen Bank is most exposed to Russia, which represents 19% of its revenue and 35% of its pre-tax profits, according to the Financial Times.
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