There is the possibility that some of South Africa’s locally-listed shares may experience come effect or have some exposure to Russia’s invasion of Ukraine, say economists at Momentum Investments.
“Based on our view of the market these include, but are not limited to, well-known shares such as Prosus, British American Tobacco, Mondi, Barloworld and Richemont,” the group said in a research note on Friday (11 March).
“These may not be the only shares affected by the crisis. We believe that they may experience some effect in the weeks and months ahead, some only marginally, but the extent across the board is still relatively unknown and not easy to quantify.” It added that these shares currently represent about 12% of the FTSE/JSE capped shareholder weighted index.
Momentum said there are also some potential tailwinds and benefits to the crisis, as it relates to resource share listed on the JSE.
As Russia represents a significant producer of a range of industrial and precious metals, ongoing sanctions and disruption of supply may stand to benefit other producers globally, including those with operations and listings in South Africa.
“It is further possible that diversified miners are likely to gain, as Russia has potentially triggered a faster energy transition towards green energy. This includes the use of battery power and other clean energy that is dependent on copper, aluminium, palladium and a range of industrial metal, thereby increasing demand and company earnings.”
A secondary factor
Momentum’s view is that geopolitical events like the invasion are likely to play a secondary role to the more primary fundamental driver for financial markets this year, namely the major global policy transition from the massive monetary and fiscal stimulus of 2020 and 2021 to eventual policy tightening in 2022.
How financial markets react to this policy pivot will be much more crucial for the relative returns from the different asset classes than what happens in Russia and Ukraine, it said.
“At most, the situation in Ukraine reinforces our view that the global policy pivot in 2022 could culminate in a less conducive backdrop for asset class returns and could lead to periodic drawdowns in riskier asset classes this year.
“While there could be some near-term pressure on South African bonds from global risk-off sentiment, and a weaker rand, some South African equity sectors will benefit from higher commodity prices and a weaker rand.”