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How Russia's war on Ukraine is impacting stock prices

Stock A chart that tracks trading is seen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 18, 2018. REUTERS/Brendan McDermid
Stocks extend sell-off as Russian launches invasion of Ukraine. Photo:Brendan McDermid/Reuters

Stock markets fell sharply this Thursday as investors awoke to the news that Russian troops had entered Ukraine during the early hours of the morning.

The FTSE 100 (^FTSE) is down 3.3% this morning, sliding 250 points 7,246 and the more UK-focused FTSE 250 (^FTMC) dropped 3.5%.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said Moscow’s bullying tactics have turned into a full-scale assault causing fresh volatility across the financial markets.

“The threat of war had already been hanging over investors, and the shock of the invasion sent the price of oil hurtling up by more than 7%, way above $100 a barrel, reaching more than $103 before falling back a notch.

Read more: What Ukraine invasion means for consumer prices in the UK

“Oil and gas prices are likely to stay highly elevated with hard-hitting sanctions set to be imposed by the international community. Market volatility has increased since the beginning of the year, stoked by rising interest rates, and today’s news has added fuel to the market turbulence.

Travel stocks

With Ukraine closing its airspace to civilian flights after Russia began military action in the country, airlines and travel sector stocks are taking a hit.

International Consolidated Airlines Group (IAG.L), the owner of British Airways, plunged more than 7%, while Easyjet (EZJ.L) shed 8.5%.

IAG . Chart Yahoo Finance UK
IAG stocks have tumbled as investors dump travel stocks. Chart Yahoo Finance UK

Rolls-Royce (RR.L) was also being hit by the sell-off in travel-related stocks given that it is high reliance on commercial air travel, with shares plunging 18% to 96.36 pence. The jet engine maker is also facing possible supply constraints as 20% of its titanium comes from Russia.

Rolls Royce . Chart: Yahoo Finance UK
Rolls Royce crashed over 18% wiping $2bn off its value . Chart: Yahoo Finance UK

The confirmation of war on European territory prompted global traders to ditch stocks and flee to safer assets such as bonds, gold and the dollar.

Richard Hunter, head of markets at Interactive Investor, said: “The escalation of tensions arising from the Russian action today has pulled the rug from markets, adding to an already brittle environment in the face of rising inflation and interest rate concerns."

Energy stocks

Still, the FTSE 100 index in London is down less than other European bourses partly because the UK market has a large weighting towards the energy sector, and oil giants BP and Shell stand to benefit from the surge in oil prices through $100 a barrel.

However, despite the surge in the oil price, BP (BP.L) was down 3.4% due to its 20% stake in Russia's Rosneft. Shell (SHEL.L) was up 2.76% to 1,997p.

BP shares slump as Russia's invasion of Ukraine sparks Rosneft sanction fears. Chart: Yahoo Finance UK
BP shares slump as Russia's invasion of Ukraine sparks Rosneft sanction fears. Chart: Yahoo Finance UK

London-listed Russian stocks

London-listed Russian companies suffered heavy share price falls, with Sberbank (SBER.ME) plummeting 47% and Gazprom (GAZP.ME) losing 38%. VTB (VTBR.ME) bank and Rosneft (ROSN.ME) are both down 43% and Lukoil (LKOH.ME) has tumbled nearly 28%.

Some 31 Russian companies are traded on the London stock exchange.

Victoria Scholar, head of investment at Interactive Investor, said:Unsurprisingly, Russian assets, as well as Russian-exposed assets, have taken the hardest hit as the perilous prospect of war, sanctions, and other penalties look set to cripple Russia’s already fragile economy.

“International investor confidence in Russia has been shattered by Putin’s aggression, sending its equity index, the MOEX, down nearly 50% at one stage - its worst day on record. This even prompted the Bank of Russia to temporarily ban short selling to stem to freefall."

Russian-exposed stocks

Russian miners are plummeting amid prospects of further sanctions following the attack on Ukraine.

The Anglo-Russian minder Polymetal (POLY.L) is one of the top fallers on the FTSE 100 now, down 44%, with the Russian mining group Evraz (EVR.L) falling nearly 34%.

Polymetal  Chart: Yahoo Finance UK
Polymetal plunged 44% due to its heavy exposure to Russia. Chart: Yahoo Finance UK

With mines in Russia and Kazakhstan, Polymetal said it had started contingency planning to keep its business running including selecting equipment suppliers, securing sales channels and liquidity management.

Neil Wilson at Markets.com said: "There was an air of complacency yesterday as investors hoped that Russia’s incursions would be limited. That fragile hope has been shattered a Russian forces moved in overnight, apparently on all fronts. Putin delivered a TV address calling to “de-Nazify” Ukraine and demanded their forces lay down their arms.

Read more: Gold price hits one-year high as investors flock to safe haven

"The West is following up with more severe sanctions but it’s hard to think these can work now the die is cast."

Michael Hewson, chief market analyst at CMC Markets UK, added: “It’s probably not hyperbole to say that Europe is now at its most dangerous juncture since World War 2.”

Defence stocks

One of the risers was weapons maker BAE Systems (BA.L), which forecast further growth as and profit margin expansion after announcing revenue increased by 13% in last year. The UK's biggest defence company saw share price go up 5.3%.

Shares in Britain's biggest defence company BAE Systems rose 5% to a one-year high. Chart: Yahoo Finance UK
Shares in Britain's biggest defence company BAE Systems rose 5% to a one-year high. Chart: Yahoo Finance UK

Investors expect defence companies to benefit from rising geopolitical tensions, with European and U.S. defence contractors well positioned, especially if NATO member states boost spending.

Germany's Rheinmetall (RHM.DE) gained more than 3.3%. France's Thales (HO.PA) added 2% in late morning trading.

Scholar said: “The market was already very volatile at the start of the year, sparked by rising inflation and monetary tightening. Now, with the added uncertainty from Ukraine’s invasion by Russia, markets are likely to remain on edge with strong demand for safe-haven stocks.

"The imbalance between demand and supply, coupled with geopolitical uncertainty looks set to continue to support an uptrend for oil stocks. Plus, the Ukraine conflict could lead to a surge in cybersecurity attacks from Russian organizations, which in turn may see an upsurge in demand for stocks within the cybersecurity sector.”

Banks

European banks are the world's most exposed to Russia and for weeks have been on high alert on fears the tensions between Moscow and Kyiv would escalate.

Italian banks index sank more than 9%, with Russia-exposed UniCredit (CRDI.MI), leading the losses in Italy with a 11.4% fall.

Other European banks with notable exposure to Russia include Austria's Raiffeisen (RBI.VI), France's Societe Generale (SOGN.PA) and ING (ING) of the Netherlands. Their shares tumbled between 8% and 20%.

Lloyds (LLOY.L) chief executive Charlie Nunn told reporters that it was on "heightened alert ... internally around our cyber risk controls and we've been focused on this for quite a while".

Lloyds shares are down more than 9%. Chart: Yahoo Finance UK
Lloyds shares are down more than 9%. Chart: Yahoo Finance UK

HSBC (HSBA.L) boss Noel Quinn this week said that "wider contagion" for global markets was a concern, even if the bank's direct exposure was limited.

“No one expected this and speculation of Putin’s next step will be the major focus of the coming days,” said Hans Peterson, global head of asset allocation at SEB investment management.

“But this does happen in a phase of the business cycle that is quite strong,” he added, saying how high energy and commodity prices now go is also crucial.

Many companies with significant exposure to Russia said they were still waiting to see the full force of Western sanctions before deciding on any action

Top risers

In London, Fresnillo (FRES.L) was up 7%, BAE Systems advanced 5.3%, Shell gained 4.29%, and miner Anglo American (AAL.L) rose 0.54%, making them the only risers of the FTSE 100.

Top fallers

In a sea of red, Polymetal (44%), Evraz (34%), Rolls Royce (18%), St James Place (9.9%) and Lloyds (9.6%) are the London benchmark index top five underperformers.

Watch: What Are Markets Telling Us About Russia's Invasion of Ukraine?