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  • Writer's pictureNiko Busch

Market Roundup

Spotlight on company - Sberbank

Sberbank is a financial services company headquartered in Moscow, Russia and is Russia’s and Eastern Europe’s largest bank and the third-largest bank in Europe overall. It operates primarily in post-soviet countries and owns a European arm headquartered in Vienna, Austria.

Sberbank announced they will be quitting almost all European markets after the European Central Bank warned on Monday the twenty-eighth of February that it faced failure and forced its European subsidiary to close. The ECB stated that the bank is experiencing unsustainable “significant deposit outflows” which Sberbank later confirmed when disclosing that they can no longer supply liquidity to its European subsidiary after Russia’s central bank ordered them not to, to preserve its foreign currency holdings. This announcement came after the state-controlled Sberbank announced record-high annual profits on Wednesday the first of March for the year 2021 with a net profit jump of 64%, equating to $12.38 billion. Nevertheless, this extraordinary performance does not outweigh the geopolitical tensions which arose from Russia’s invasion in Ukraine, causing said “significant deposit outflows”.

This pull back from the industry titan highlights the pressure many Russian businesses are undergoing after the West imposed extreme sanctions on Russia and its central bank, with the sole purpose of isolating Moscow as a response to its decision to attack Ukraine. On top of the sanctions, many Russian lenders were excluded from the SWIFT messaging system, which is critical to any financial institution for international trade. Additionally, the Deutsche Boerse announced that it will suspend trading for a vast number of Russian securities, including Sberbank. The Austrian Financial Market Authority imposed a moratorium on Sberbank Europe, which will temporarily prohibit it from any activity. The factors mentioned above have led to Sberbank closing its European subsidiary and caused its stock to depreciate by around half of its value just a month ago.

Germany – DAX 40

Germany supported the movement to block certain Russian banks from accessing SWIFT, Russia’s main method of importing and exporting goods. Furthermore, the Nordstream 2 pipeline, which is supposed to supply natural gas from Russia to Germany, has been halted, a crucial development since Russia supplies 50% of Germany’s natural gas, making them significantly dependent on them. Furthermore, Olaf Scholz, the German Chancellor, announced that he is pledging €100 billion as a one-time payment to increase Germany’s military capabilities on top of the 1.5% of GDP (2020 GDP = $3.8 trillion) which it has allocated for military spending. A number which he also has pledged to increase to 2% of GDP. In response to these announcements on Monday morning, the twenty-eighth of February, the German defence contractors Rheinmetall and Hensoldt rose 30% and 45% in the Frankfurt Stock Exchange. Furthermore, Germany announced the construction of two new liquified natural gas terminals in northern Germany to reduce its reliance on the Russian energy supply.

The DAX 40 is experiencing, like many other indexes, a significant depreciation, returning to the same levels than those at the beginning of March of 2021 at around €13,800 on Thursday, third of March. This equates to a 10.87% depreciation of the DAX in one month, which is around the same time when the tensions started rising between Ukraine and Russia. With rising insecurity about what the future holds and when the war stops or gets “better” investors don’t know where to hold their money and have chosen to close their positions i.e. sell and hold alternative commodities such as gold, cash or even cryptocurrencies. This is evident not only through the European markets slumping for the third time in four sessions but also due to the markets’ performance across the pond in the US.

UK – FTSE 100

The UK stock exchange, on the other hand, has seen less of an impact of the ongoing war between Ukraine and Russia. When comparing the FTSE 100 value from a month ago to now, we see a decrease of around 3.5% to £7,200 as of Thursday third of March. This is a very significant decrease, however not as severe as in other European countries. The U.K. decided to assist Ukraine with weapons and funds at an early stage and were amongst the first to sanction Russia, placing them at the forefront of the indirect war between Russia and the West. Furthermore, the UK has agreed to take in 200,000 Ukrainian refugees, which, from the 4 million that the United Nations High Commissioner for Refugees expects, can be considered to be on the lower end; nevertheless, it is a start. In other news, this period of the year is quite significant since many listed companies release their earnings reports; however, no significant surprises or major consequences have occurred so far because of that. As mentioned before, the ongoing war between Ukraine and Russia seems to be currently trumping everything else in the stock markets, even earnings reports. British Petroleum’s (B.P.) stock has seen a significant drop due to current tensions. On the third of March, it announced that it is withdrawing its stake in Russian-based oil and gas company Rosneft. This announcement symbolises the most significant movement by a western company in response to the Russian atrocities. B.P. had been operating for more than 30 years in Russia and acquired a nearly 20% ownership in Rosneft, which provides half of B.P.’s oil and gas reserves and a third of its production. B.P.’s stock has experienced a depreciation of roughly 5% due to this decision and roughly 12% in a one month period. Offloading this stake “will result in charges of up to $25 billion,” according to yahoo finance.

US – S&P 500

The S&P 500 seems to be the least affected by this issue, probably because of the geographical distance to the war. In the last month, its value was reduced by around 2.5% to $4,350, a drastically less significant impact than the one experienced in Europe. Nevertheless, the conflict has put into question the availability of non-renewable energy sources such as natural gas and crude oil, both of which are commodities and resources Russia exports in large sums. The price of crude oil did not only increase because of its now limited availability yet crucial role for any aspect of our day to day lives, but it also increased because it is a key component to any war. For example, the 40 miles long Russian military convoy needs to be fuelled somehow; same as any type of plane whether that be military or commercial. Rising oil prices have caused all the airlines stock to depreciate significantly since the price of kerosine (made from oil) the fuel used for planes has increase. Hence the demand for oil has risen and it’s availability shrunken. This caused the oil price to surpass $115 per barrel. A level that was previously only seen in 2008 when the U.S. went to war with Iran and the oil price reached a historical all-time high of $147.27. In the last month, oil price went up by roughly 23% as of the third of March. A not only a drastic but consequential jump. Firms now have much higher production costs and thinner margins. Alternatively they can increase their products’ prices which however further promotes inflation, which is already at concerningly high levels due to the COVID-19 pandemic, an issue the FED and ECB are currently trying to combat and reduce by raising interest rates.



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