The latest wave of sanctions on Russia will have a widespread influence across Europe, forcing indifferent investors to sit up and take note, according to experts.
The EU has followed the US and published tough sanctions targeting Russia’s energy, financial and defence sectors and restricted access to EU capital markets for Russian state-owned banks.
Kerry Craig, a global market strategist at JP Morgan Asset Management, said investors previously viewed these issues as “mere background noise” but predicted that the new round of sanctions would make them change their tune.
Matthew Beesly, head of equities at Henderson, said: “It’s not a massive deal at the moment, but the upcoming trouble seems quite clear.”
Some negative consequences of the sanctions are already being felt across Europe, as Germany’s closely watched Ifo Business Climate Index, one of the leading indicators of economic growth, fell for the third consecutive month in July.
Russia has already struck back against sanctions from the west by banning meat, fish, milk and fruit imports from the US, the EU, Australia, Canada and Norway.
Mr Craig expects that countries in Eastern Europe will be hurt more by the sanctions as they are more reliant on Russian trade.
Estonia, Latvia and Lithuania rely almost entirely on Russia for their gas supply, according to data from Eurogas and JP Morgan Asset Management. Germany is also heavily reliant on Russian energy.
However, businesses across Europe seem destined to take a hit.
Companies such as clothing retailer Adidas, oil and gas majors BP and Total and car manufacturer Volkswagen have already started to calculate their losses from the sanctions, according to reports.
In the UK, banks such as HSBC and Barclays are expected to be hit. Each provides services to Russian corporate and investment banking clients.
Mr Beesly stressed that the effects of the sanctions would be wide-ranging. He said that the extent of some individual UK companies’ exposures to Russia might be “surprising to many”.
The manager pointed out that Marks and Spencer has 41 stores in the country and generates about 4 per cent of its operating profits from Russia.
Moreover, last year WH Smith won a contract to sell newspapers in Russian railway stations and had been planning to expand its operations in the country.
“UK corporations have been courting Russia and the sanctions are going to play a larger part than people think,” said Mr Beesly.
JP Morgan has been reducing its exposure to Russia during the recent political wrangling, removing all traces of the country from its Strategic Bond Fund.
Stuart Rumble, investment director at Fidelity, said that he had been keeping a close eye on the issue.
He said: “We had holdings in the national champion banks such as VTB and also in some industrial companies like Russian Rail, but we’ve sold them off.
“It wasn’t a credit concern, but the sanctions are going to impact them.”
Kunal Ghosh, portfolio manager at Allianz Global Investors, warned that the “effect of the sanctions hasn’t trickled down into the economy yet; we really haven’t seen the impact.”
On a similar note, Mr Rumble said it was not clear if the situation would escalate.
“The latest set of sanctions will have an effect over the next 12 months. I’d be cautious of reinvesting and investors won’t get comfortable with Russian companies or exposure to the economy until the situation at least looks like it will be resolved.”
However, Mr Craig explained that it could be worse. “An outright ban on Russian energy exports would arguably have had a greater impact, given the country’s heavy reliance on oil and gas for revenues and economic growth,” he said.
When Russia sneezes, these are the companies that catch a cold
Adidas
Adidas, the world’s second-largest sportswear group, has seen its share price fall by more than 20 per cent since the end of July, according to figures from Bloomberg.
The German firm runs around 1,000 stores in Russia, but plans to close some of them and open fewer new stores than it had previously planned, according to a recent statement from the firm.
The company issued a profit warning, saying its net income was about a third lower than forecast due to the crisis in its recent quarterly report. Net income is now forecast to be about €650m (£515m) compared with the previous target of €830m-€930m.
BP
BP owns a fifth of the Russian energy company Rosneft, which accounts for about 10 per cent of BP’s total value of around £90bn.
Now the multinational has warned that the crisis could hit its profits. In a statement to the London Stock Exchange (LSE), the company said: “Any future erosion of our relationship with Rosneft, or the impact of further economic sanctions, could adversely impact our business and strategic objectives in Russia.”
BP’s share price has fallen nearly 10 per cent from its peak towards the end of June, according to data from the LSE.
However, the company remains committed to its long-term relationship with Russia.
Metro
Düsseldorf-based Metro – the world’s fifth-largest retailer by revenues – revealed that sales in Ukraine have declined sharply and said that events in Russia have been generating risks for the group. Its sales in Eastern Europe fell 14 per cent in the second quarter of 2014.
Metro had planned to list a stake in its Russian cash-and-carry business but has put this idea on hold until the situation shows signs of improvement. Analysts had estimated that the listing could raise €1.75bn for the group.
Shares in the retailer have fallen by nearly 25 per cent since the start of July as the impact of the crisis has become apparent.