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Russian stocks hammered by sanctions

Investors piled out of London-listed Russian stocks this week, regardless of their links to fresh US sanctions
April 12, 2018

Last Friday, it was early afternoon in London when the US Department of State singled out a raft of officials, oligarchs, their companies and a state-backed bank as entities involved in or benefiting from “worldwide maligned activity” on the part of Russia.

Announcing asset freezes on the entities, and anyone dealing with them, Treasury Secretary Steven T Mnuchin said the “Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities”.

The financial effects weren’t fully felt until Monday 9 April, although they soon extended beyond Washington’s immediate targets. After mulling the implications of possible US sanctions over the weekend, investors piled out of Russian stocks in London and Moscow, sending share prices in a number of companies into meltdown. Russia’s currency was also hit; in the three trading sessions before this magazine went to press, the rouble fell 12 per cent against the dollar.

London’s main market, a major hotspot for Russian listings until a few years ago, suffered some big declines. Most notable was EN+ Group (ENPL), the hydropower and aluminium conglomerate, which raised $1.5bn last year in a secondary offering in the City. Within days of the company and major shareholder Oleg Deripaska's inclusion in the sanctions, the group’s global depository receipts had been suspended from trading. Analysts of the stock also cut their coverage, citing the need to comply with all sanctions.

The blowback spread to Glencore (GLEN), which was in the process of swapping its 8.75 per cent stake in EN+ subsidiary Rusal for a roughly 10 per cent holding in the parent company. That deal has been abandoned, chief executive Ivan Glasenberg has stood down as director of the Russian aluminium group and Glencore is currently reviewing its contracts with Rusal, from which it bought $2.4bn of aluminium in 2017. Similar trading relationships between Rusal and Rio Tinto (RIO) are also under review, as per a Reuters report quoting Rio aluminium executive Alf Barrios.

The threat of sanctions sent investors piling out of other Russian stocks, regardless of their direct ties to oligarchs on the US list. Casualties included steel giant Evraz (EVR), backed by Chelsea FC owner Roman Abramovich, and precious metals miner Polymetal International (POLY). Shares in both FTSE 250 stocks fell by a fifth. There was a similar drop for major gold producer Polyus (PLZL), while the smaller Highland Gold Mining (HGM) also sold off.

Under different circumstances, a higher gold price and suddenly-weakened rouble would attract share buying. Against that backdrop, a Polymetal spokesperson noted that the fall in its share price was “broadly in line with Russian equities”, adding that “neither the company nor its large shareholders are affected by the sanctions”. Evraz did not respond to a request for comment.