Cac 40: What impact does the conflict with the war in Ukraine have on the values ​​of the CAC 40?

(BFM Bourse) – Russia’s February 24 invasion of Ukraine has rocked financial markets. Like Societe Generale or Renault, many listed French companies have relatively large exposures to Russia. Almost two months after the outbreak of the Ukrainian conflict, what are the values ​​​​of the CAC 40 tested by the Russian offensive and those who resisted?

The Paris market ended 2021 well above 7,000 points, a milestone it had never reached before. The previous vintage then went down in the annals of the bourse as the year the Paris market broke its 20-year-old record. Operators then went optimistically into 2022. But from January 2022, the markets heard the sounds of boots coming from the east of the European continent. On February 24, 2022, tensions escalated with the Russian offensive against Ukraine by land, air and sea as part of the largest state-to-state attack in Europe since World War II. Another bad news, because the management of rising costs has become a fact that cannot be neglected for companies.

France’s first foreign employer in Russia

The current crisis actually dates back to the February 2014 Ukrainian revolution that led to the ousting of pro-Russian President Yanukovych (convicted in absentia and now exiled to Russia). His fall was followed by Russia’s annexation of Crimea in response, then Russian intervention in Ukraine’s Donbass – not without significant collateral damage with the destruction of a commercial airliner, the Malaysia Airlines flight from Amsterdam, killing nearly 300 people . In response, not only the United States, but also the European Union and other countries imposed a series of economic sanctions on Russia, which were extended in the following years.

The relationship between Russia and the West has therefore been characterized for years by recurring tensions interspersed with phases of appeasement. And despite attitudes and pressures from both sides, economic exchanges continue to this day, and economic ties even claim to be particularly dynamic with France, which benefits from a long-standing and strategic economic position in Russia.

In addition, with more than 500 French subsidiaries established in various fields – including 35 CAC 40 companies – France is the leading foreign employer in Russia with a total of almost 160,000 employees. France’s significant exposure to the Russian economy therefore translates into significant exposure to a number of French-listed flagships. Unsurprisingly, the Paris Stock Exchange’s flagship index, which has the largest presence in Russia since conflict erupted in Ukraine on February 24, 2022, almost two months ago, has paid a heavy price. Since the close on February 23, the CAC 40 has offered resistance, down 2.8%. Behind this average there is a large gap between the values ​​of the index.

Defense, defense and steel: the winning trio

Not surprisingly, defense stocks have been the most sought-after since the conflict began. At the top of the most popular CAC 40 shares, Thalès stood out with an increase of 52.5% (between the closing price of February 23rd and that of Thursday April 14th) and recorded a new historical record this Thursday at 129 euros . The French group derives 50% of its income from its military activities. The arms race on European soil is likely to fuel the upward trend for the title of the French electronics group.

ArcelorMittal (+14.4% over the period) ranks second among the stocks most sought after by investors since the outbreak of the Ukraine conflict. The steelmaker’s title is boosted by rising steel prices in Europe. This indispensable metal for the automotive or construction industry has become a scarce commodity, mainly due to supply problems related to the war in Ukraine. The price of steel rose from under $1,000 per ton at the end of February to currently over $1,479 and even reached a high of $1,541 at the end of March.

Defensive values ​​played their role to the full. Its safe haven status provides a calming oasis for investors seeking safety during stock market shocks. Healthcare stocks such as Eurofins Scientific, the leader in bioanalysis (+11.8%), Sanofi (+10.7%) or Air Liquide (+9.9%) have not usurped their reputation as safe havens.

Stocks in the retail and consumer goods sectors have also stood out in these difficult times in the markets, such as Carrefour, which is up almost 11.7%, or L’Oréal, which is up 5.2% since the start of the Ukraine conflict is.

Get off the road of automobile and bank stocks

At the back of the pack we find Renault. The diamond brand is paying the high price for its involvement in the Russian market with a stock that has fallen more than 30% in the past two months. The manufacturer is one of the largest foreign companies in Russia. Taking into account the subsidiary Avtovaz (owner of Lada), the group is number 1 on the Russian market with a remarkable 30% share of new registrations. With 482,264 vehicles sold, Russia is the car manufacturer’s second largest global market (after France with 521,710 units sold, but well ahead of Germany, where the French manufacturer only sold 177,795 vehicles). Competitor Stellantis (-17.6%) is certainly less exposed to the Russian market, but suffers from semiconductor shortages that are blocking production.

Bank stocks, driven by the return of inflationary pressures, were the stars of the leading index at the beginning of the year…until the Russian invasion of Ukraine. Investors have massively turned their backs on Societe Generale, which is down 26.4% since Feb. 24. In fact, the red-black bank occupies a leading position in Russia through its subsidiary Rosbank, which accounts for around 9% of the group’s total net banking income (GNP). In 2021, the activities of its Rosbank subsidiary accounted for 2.8% of its total net banking income (equivalent to sales) and 2.7% of net income.

On April 11, the French bank announced that it would cease operations in Russia with the sale of its entire stake in Rosbank. Crédit Agricole (-21.3%) and BNP Paribas (-16.9%) also suffered heavy profit-taking despite their limited exposure to Russia.

Up until February 23, Engie was one of the star stocks on the Paris coast. The stock of the energy group had a good start to the year with a plus of 10% in the haversack. The group had released significantly higher results for 2021 and showed its confidence in steadily improving its performance over the next three years. Then the rise of tensions in Eastern Europe changed the situation… Engie is indeed heavily exposed to Russia through its stakes in Gazprom pipelines (Nord Stream 1 and 2). The former Gaz de France then stated that it was actively seeking to diversify its supplier portfolio, increasingly using volumes from other European countries and internationally.

Since the Russian-Ukrainian conflict, Alstom stock has derailed 10.3%. Alstom is directly present in the country through its subsidiary Transmashholding (TMH) with up to 20%. The development of the Russian rail transport market is one of the current main growth drivers in the European market (which accounts for half of the Group’s turnover), along with Germany and Italy.

TotalEnergies caps damage with a drop to 5.7%. The increase in black gold prices since mid-February (+30%) offset the group’s exposure to Russia. The hydrocarbon producer is in fact the operator of the Termokarstovoye oil field (58.89%) and holds a 20% interest in the Kharyaga field. TotalEnergies is also a 18.9% shareholder of PAO Novatek, the largest independent natural gas producer behind the state-owned juggernaut Gazprom.

Note Wordline’s worrying performance (-26.8%) despite its low exposure to Ukraine and Russia. The payment solutions specialist has been penalized by Apple’s plan to compete head-on in payment services and infrastructure. Kering (-17.4%) is losing ground, despite the luxury group having less exposure to Russia than its rivals LVMH (-3.9%) and Hermès (+5.2%).

Safran (-7.5%) and Airbus (-6.9%) have lost ground since the Russian offensive in Ukraine. The two tricolor aviation giants will have to go without titanium from Russia, while the country is the premier supplier of Airbus and Safran.

Among the stocks that have proved resilient in recent weeks, we can mention Legrand, which suffered a slight loss of 1.5%, Dassault Systèmes, which gained 0.7%, and even Pernod Ricard (+0, 9%). Orange, EssilorLuxottica and Capgemini remain on track with gains of more than 2% since February 24th.

Sabrina Sadgi

©2022 BFM Exchange

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