Russia invades, sanctions to follow

Blog
Thursday 24th February 2022

Russia invades, sanctions to follow

Blog
Thursday 24th February 2022
Written by Chris Lioutas

Markets:

  • Local and global equity markets weakened this week as escalating European tensions saw Russian troops enter Ukraine.
  • In local stock news, Magellan reported a net profit after tax of $251.6 million for the 1st half, an increase of 24% on the prior period, whilst the company declared an interim dividend of $1.10 per share, up from 97c. The fund manager is considering an on-market share buy-back.
  • AGL Energy has rejected a surprise $3.54 billion takeover approach from billionaire Mike Cannon-Brookes (Atlassian) and Canada’s Brookfield Asset Management in favour of a plan to split in two this year. A tech guy running an energy company……what could go wrong…...
  • QBE Insurance reported a net profit of US$750 million for calendar 2021, compared with a US$1.5 billion loss in the previous year. Investors were unconvinced by the result.
  • Super Retail Group had first-half profit fall 35% and warned higher freight and transport costs will continue to affect margins, with lockdowns and higher costs contributing to the weaker result.
  • Telstra and TPG will share their regional networks in what they claim will provide better service to people outside of major cities. The two companies revealed a 10 year network deal which will improve coverage without the need for costly network rollouts.
  • Coles reported a better than expected performance for the 1st half of its financial year but rising costs from covid wiped gains from improved sales. Woolworths reported lower 1st half profit due to virus-related costs with the company warning that it’s inevitable food prices will rise.
  • Seven Group improved 1st half earnings and is banking on its large stake in Boral to deliver better full year numbers. The company posted a 21% increase in net profit, which doesn’t include the 69% stake acquired in Boral.
  • Rio Tinto reported an improved full year profit of US$21.09 billion and announced a special dividend of US62 cents per share, which will be paid in addition to the final dividend of US$4.17 per share.
  • Scentre Group returned to full year profit benefiting from an uptick in property valuations. Net profit after tax was $887.9 million, with revaluation gains of $81 million. Investors will receive a higher distribution.
  • Oil prices surged above US$100 a barrel for the first time since 2014 following Russia’s invasion of the Ukraine before settling back down to trading levels earlier in the week on news that the US is considering a potential release from its strategic oil reserves in coordination with allies.
  • The Australian dollar fell this week as is normally case when global risks rise, investors seeking out safety in the Japanese Yen, Swiss Franc, and US dollar.

Economics:

  • CBA lending data for January showed that growth in new lending for housing eased, primarily driven by owner-occupiers, whilst higher fixed borrowing rates saw a decline in the share of fixed rate lending. Consumer lending growth softened whilst business lending growth remains solid.
  • A key Australian consumer confidence index fell 1.4% despite the easing of virus restrictions and re-opening of international borders, with concerns regarding inflation hitting home for consumers. The drop in confidence means household spending might be weaker in the period ahead.
  • Australian construction data showed that building work done fell by 1.7% in the 4th quarter because of a 3.7% fall in private sector residential work. Work completed on renovations also eased in the quarter but remains at a high level. Engineering work completed lifted driven by stronger public sector activity.
  • Australian wages rose by 0.7% in the 4th quarter, with the annual rate stepping up to 2.3%. Both private and public sector wages grew at the same pace in the quarter. Including bonuses, the annual rate lifted to 2.8%, but remains below headline inflation numbers. The labour market has tightened again over the last few months.
  • The volume of capital expenditure in Australia rose by 1.1% in the 4th quarter, with mining investment increasing by 2.6% and non-mining investment increasing by 0.5%.
  • A private US data firm said its manufacturing data rose to a 2-month high in February, suggesting the US economy regained momentum.
  • Prices charged for goods and services in the Euro area jumped by a record amount in February as an easing of pandemic restrictions led to a strong rebound in economic activity.
  • China’s central bank has kept its benchmark lending rates unchanged in February, in line with market expectations, after cutting rates a month earlier.
  • Hong Kong will boost support for consumers and the unemployed by allocating more than US$6 billion as a covid outbreak dents the economy. The government has banned travel from several countries, closed schools, and imposed a range of other restrictions.

Politics:

  • Russia invaded Ukraine after 2 regions close to the Ukraine/Russia border declared themselves autonomous or independent, thus seeking support from Russia whist on Ukrainian land. Not a smart move from the Russians as sanctions could become crippling, but equally damaging for the West in terms of embarrassment and the sanctions that will now follow which will add further pressure to current high oil and gas prices and broader inflation. Sanctions could also force the US to reluctantly enter into a nuclear deal with Iran to ease oil supply concerns. China said it opposes the sanctions and called US actions “immoral”.

Author 

Chris Lioutas, Director, Insight Investment Consultants

Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee. 

With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972

Maxim Private Clients Pty Ltd ABN 47 611 614 398 AFSL No. 511972

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