The fallout from the diplomatic tensions between Russia and the UK and allies in Europe and the USA is resulting in an inadvertent boost for those investing online in mining stocks. The UK Government is convinced that Russia was behind the Novichok nerve agent used to poison double agent Sergei Skripal and his daughter Yulia in Salisbury early last month. It is also convinced that the attack on British soil was carried out by Russian agents. The UK’s position has been supported by European allies as well as the USA.
The USA is also far from happy with what it believes has been Russian meddling in recent elections as well as its involvement in supporting the Assad regime in Syria. The result has been a raft of new sanctions imposed on Russia that are now seriously impacting the vast country’s miners’ access to international export markets. That’s starting to push up commodity prices and listed non-Russian miners are benefiting.
One particular repercussion to hit the headlines yesterday was Russian alumina supplier Rusal being unable to meet supply contract commitments as a result of sanctions. International aluminium prices leapt to a six year high on the news, touching $2,445 a tonne.
Rio Tinto’s share price has risen over 10% since the end of last month. A stronger dollar and positive set of results this week have also contributed but Russian sanctions boosting commodity prices has also certainly provided an additional boost. Antofagasta is up 5.5% over the same period, Glencore 5.7% and BHP Billiton just short of 9%.
However, as well as ramping up commodity prices and driving share prices, the sanctions are also causing miners problems. Rio Tinto is set to be forced to pull out of a deal to supply bauxite to Rusal’s Limerick refinery. Many other major listed miners also have trading relationships with Russian partners that are or could be affected by sanctions.
More adventurous investors might even look to the Russian stock market. Russian equities are currently the cheapest in the world. Its price to earnings ratio is 7.7 compared to 17.1 for London and 21.8 on Wall Street. Russian Cape, price to earnings over 10 years, scores 6.3 to the UK’s 15.3 and USA’s 29.8. However, despite their perennial relative cheapness, Russian equities are considered are a major risk. Oil price and the country’s political situation, internally and in an international context, have always been the major driver of Russian equities. Most institutional investors consider the risks too high to take much of a position on Russian equities.
However, Morningstar Investment Management multi-asset portfolio manager Mike Coop sees opportunities. He believes the recent sell-off of Russian equities has been knee-jerk and the market still holds opportunities for investors willing to take on a high degree of risk. He is quoted in The Telegraph as commenting:
“Investors have a margin of safety in the cheap pricing, and the oil price is sustainably higher. Russia offers an attractive risk-reward balance when shares elsewhere are expensive. The sanctions aren’t a game-changer.”
He holds ‘low single digit’ positions in Russian equities in some of his portfolios.