4 Mar 2014

 

Sam Vecht
Head of BlackRock Emerging Markets Specialist Team


Events in Ukraine, particularly in the Crimean peninsula, have caused severe volatility in Emerging European markets.

Although developments on the ground are fluid, we believe that the most likely outcome is that Crimea becomes a Russian-backed autonomous and ‘unrecognised’ region, rather than an outbreak of open hostilities. Precedents for this sort of outcome include South Ossetia, Abkhazia and Transdniester which all of which have ultimately had little global or even regional economic impact.

While the military moves have had no direct impact on companies in the region so far, the market is clearly intensely worried about the potential for disruption and Russian equities has been the focus of selling. Yesterday, shares in Russia’s largest financial, Sberbank, were down to 17% before a soft rally, and energy giant Gazprom fell 12%.*

There is likely to be indirect macro-economic impact. Ukraine will require IMF support and may well further devalue its currency as part of that process. This may have some incremental impact on the earnings of some companies in the region, notably banks and telecommunications firms with operations in Ukraine. Most of the listed Ukrainian companies are involved in agriculture and mining and so would ultimately benefit from a cheaper currency, but of course this is of secondary consideration to the impact of risk on valuations.

We are using the opportunity of some of the very sharp market moves this morning to accumulate some extra stock in Russian positions that we think may be oversold and are fundamentally attractive.

*source: Bloomberg 4 March 2014, in USD

 

 

 

 

 

 

 

 

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