Yes, this is a sensitive subject. A few weeks ago, I wrote about Canadian stocks. Some of them are dually listed and have a lot of potential for future growth. Today, I will write about Russian stocks and ETFs that are also dually listed on US exchanges. Keep in mind that most of them are halted as of March 7th on exchanges across the globe due to the war happening between Russia and Ukraine since February 24th.
Do the Russians Have a Stock Market?
This article is intended to be informative and non-political. Hence it’s about Russian stocks. The Russian economy has performed very poorly in the last decades and it is difficult to see a recovery shortly.
Some company executives are oligarchs and putting more money in their pockets isn’t the best idea. I don’t recommend any of the Russian-based stocks, but I want to inform readers of their existence.
There are heavy sanctions on the Russian economy and companies. There are a lot of questions about its economy. It’s currently hard to predict if or when they will resume trading.
Many US companies stopped their sales in Russia. Some had a significant percentage of their sales there. Others defy sanctions and continue to conduct their operations. We will take a look at both.
Some ETFs trading on US exchanges can hold a significant percentage of their holdings in Russian stocks. Others hold between 2-3%. We will take a look at both types.
This Van Eck ETF was created in 2007. Over 95% of its 30 holdings are in Russia. The remainder is in Cyprus. Since its inception, investors have been on a roller-coaster stock ride. It is currently halted at its all-time low.
Almost two-thirds of the ETF is invested in the energy and materials sectors. The fund lost over 75% of its value since the beginning of the war. How this war affects Russian stocks remains to be seen.
Similarly, iShares’ ETF has seen the same results. The halted fund transferred the majority of its holdings into Cash and derivatives. Less than 1-2% is currently allocated to any of the 25 Russian holdings. This leaves a very pessimistic approach to the future of this fund.
Since it‘s not traded exclusively in Russian securities, this fund is not halted. As of the end of February, Vanguard’s fund holds less than 1% of its holdings in Russian securities.
It was previously around 3%. The rest is invested in other emerging markets such as China, Taiwan, India, Brazil, etc.
The majority of stocks have been performing poorly since the beginning of the war. In the last month, emerging markets took a bigger hit than the S&P. They are considered a riskier investment with a higher potential reward than most major stock indexes.
After this madness ends, it’s hard to know if Russia will still be a part of major emerging markets ETFs. Some funds may decide to eliminate Russian securities completely, while others might take a risk and increase their holdings.
What can be a reasonable theory for the future of these ETFs? As long as Putin remains in power, fund managers might want to stay away from the Russian economy. If a transfer of power ever occurs, we may see a return. The following weeks, months, and maybe years will dictate the way things go with Russian stocks.
Can You Invest in Russian Stocks?
Now, let’s move on to Russian stocks that were also trading on major US exchanges. They are all halted and their future is uncertain.
Foreign assets of many of the top executives have been seized over the last month. It is currently difficult to value these companies as their stocks took a huge hit and may not reflect their business activities.
Russian Stocks: Gazprom (OTC: OGZPY)
Our first stock in a Russian Stocks list is Gazprom. Gazprom is Russia’s most valuable company. It is a majority state-owned multinational energy company. They focus on gas and oil exploration, production, and transportation across many countries.
Russian oligarch, Alexey Miller, is the current CEO. Both Gazprom and Mr. Miller have been heavily sanctioned over the last weeks. The company will most likely keep its operations in Russia and its allies. However, its footprint in the world may take a severe hit in the near future.
Russian Stocks: Lukoil (OTC: LUKOY)
Surprise! Russia’s second most valuable company conducts its business in the same industry. It is owned by an Azerbaijani oligarch, Vagit Alekperov. The story here is similar to the previous one. Both companies are, but may no longer be, one of the largest in their industry. Their faith is yet to be determined.
With all the sanctions on Russian energy companies, the price of gas, oil, and other basic energy needs has increased over the last month. Europe has to find alternative sources to serve its large population before prices rise out of control. Saudi Arabia and other countries may step in to help. The shady energy industry will be an interesting one to follow.
Russian Stocks: Nornickel (OTC: NILSY)
Another oligarch with a big business. This leading nickel and palladium mining and smelting company is run by Russian oligarch Vladimir Potatnin. Western sanctions on this and similar industries will also affect the world. Russia would sell them to their Eastern allies if they don’t follow suit with the sanctions.
Several other industries in Russia are affected by sanctions. It’s hard to say for how long and what are the long-term effects on the rest of the world. Many telecom, social media (Yandex), and financial companies (QIWI and Ozon) are also impacted by the war. Regardless of their ties with Putin, their business is affected.
Not all US companies conduct their business solely in North America. Many get a significant percentage of their revenues from Russia. In the next section, we will take a look at a few companies and what happened with them in the last month.
Companies with Business in Russia
We can agree that food and drink companies are easily replaceable. They aren’t essential products.
Hence, many multinational giants such as Mcdonald’s (NYSE: MCD), Starbucks (NASDAQ: SBUX), and Coca-Cola (NYSE: KO) halted all their business in Russia.
Putin recently announced that if they don’t come back by May 1st, their business model and logos will be copied by local companies. As a public company, it can be difficult to pick the right thing to do. Pleasing shareholders or local and international governments.
How much money will this halt cost? Let’s take Mcdonald’s as an example. They stated that this halt will cost them $50M per month. They have over 800 stores in Russia. And if new local companies begin to copy these business models will we see them go public and become Russian stocks?
Tech giants such as Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL) are no longer selling new products in Russia. They aren’t suffering too much from the sanctions.
On the other hand, Meta (NASDAQ: FB) was completely banned in Russia by Putin. No more Facebook, Instagram, or WhatsApp.
The Russian government wants to eliminate any information from other countries entering the minds of its people.
Consequently, Facebook is losing over $3M per day.
Pharmaceutical companies are finding themselves in a grey area. They are considered essential, but they are receiving a lot of criticism for not respecting the sanctions.
Big pharma is already a very controversial industry with a lot of power politically. Some companies decided to no longer establish new partnerships with Russian companies.
A few left the country altogether. However, many stayed and keep defying the sanctions. These include Pfizer, Johnson & Johnson, and Abbott. They stopped most non-essential businesses such as advertising and new opportunities, but they are still selling their products. Cutting off an entire country from a basic need can sound cruel.
Some companies have a significant percentage of their sales in Russia. They are much more impacted than the ones mentioned above. French automobile manufacturer Renault (OTCMKTS: RNLSY) has a 29% market share in Russia. It’s their second-largest market outside of France. Renault’s stock took a beating recently. It lost more than 30% of its market cap in the last month.
Next, Danish beer giant Carlsberg (OTCMKTS: CABGY) will also suffer from a stop in sales. Over 10% of its market is in Russia and Ukraine. The stock fell over 20% since the beginning of the war.
Russian Stocks Conclusion
Any securities that have ties with Russia will experience a dip in their stock price. Percentages will differ depending on many factors. Companies that originate from Russia will suffer the most and their stocks are a big wild card over the foreseeable future.
The outcome of the war is still uncertain. Will Putin remain in power? Will sanctions continue when everything is over? And will companies return to the Russian market? There are still a lot of questions that remain unanswered right now. Personally, I won’t be buying the dip when some companies resume trading if they do.
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