Russian Risks

This week we saw the US ramp up sanctions on the Kremlin once again, banning the import of oil and gas from Russia – a move perhaps more symbolic than impactful, as the US consumption of Russian energy is limited. The UK followed suit and set out the intention to phase out the use of Russian oil by the end of the year. With Europe being more reliant on Russian energy imports, the EU made a commitment to reduce their consumption of Russian gas by two-thirds within a year.

Whilst the imposition of these sanctions may not have an immediate impact to deescalate the situation in Ukraine, it will certainly make Russian officials think about how sustainable this conflict is for their economy. Wider financial markets should come through the conflict relatively unscathed in the fulness of time; however, there are more short-term risks around trade and supply shortages that are worth highlighting.

Energy

Russia has threatened to retaliate to recent sanctions and cut off the oil and gas supply entirely. Although demand for energy will diminish as the year progresses into warmer weather, the question remains on whether industry can shrug off shortages and rising costs if the taps were turned off completely. Growth would be stifled by continuously rising energy prices, though we have seen a mediation of this trend over the last few days.

Supply Chains

Another risk relates to trade flows and shortages of goods outside the energy sector. Supply chains have already been struggling to get back to normal levels following the Covid pandemic and shortages remain in some areas. While Russia is not a large exporter of manufactured of goods, it does control the supply of certain commodities, including metals – a shortage of which has a knock-on effect on supply and therefore pricing and inflation.

Finances

We have already seen sanctions imposed on the Russian Central Bank, with several other Russian banks being excluded from SWIFT. This could have a spill-over effect to certain exposed institutions, notably French banks.

Bowmore Portfolio exposure to Russia

As a reminder, we have very little direct exposure to Russian companies in portfolios. Whilst some funds have leveraged opportunities in the area within their mandates, most do not invest in Russia at all, which keeps our overall exposure negligible, as shown in the below table below.

Please do let us know if you should have any queries relating to your portfolio.

Source: Morningstar Direct; as at 28/02/2022
NB: The data is the % of equity or fixed income exposure within each portfolio.

Source: Refinitiv – Market returns as at 10/03/2022

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