What is the impact of the worrying situation between Russia and Ukraine on European equities? UBS strategist, Nick Nelson, asks the question, who has dedicated a report entitled "European stock exposure to Russia" to this issue. The strategist recalls that European equities are down 6% from the peak reached on June 10th. A partial explanation is due to weaker macro data from the Eurozone, but also to geopolitical turmoil. There are plenty of sources of concern for the equity sector, starting with the conflicts in Gaza, Iraq and the outbreak of an Ebola outbreak. But the biggest concern is the one closest to “home” – the conflict in Ukraine.
Nelson reminds us that up to now the stock markets have been able to grow also thanks to an increased appetite for risk among investors, from now on the focus will be on the ability to generate profits. And in this transition phase, European stock markets are particularly sensitive to external shocks. On the other hand, the strategist points out that in the last two years the p/e of the European stock exchanges has gone from 9,3 times to 14,5 times the profits. After this rally, it must now be earnings that justify further appreciation in the indices.
And if from a macro point of view the most important impact concerns the cost of energy given that Russian gas represents 40% of that consumed in Germany, the psychological aspect should not be underestimated either. “About 3,5% of German exports go to Russia, but the greatest risk is represented by the impact this situation can have on the sentiment and willingness of German companies to make investments,” says Nelson.
From the point of view of individual companies, UBS has identified some companies that draw at least 10% of the EBIT margin from the Russian market. These are Adidas, Carlsberg, Coca Cola Hellenic, Fortum, Mtg, Otp, Raiffeisen, Renault, Sponda, Stada, Arzneimittel and Yit.
