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How Sanctions Against Russia Impact Investors

Western politicians have sealed the fate of Ukraine with a steadfast refusal to confront the military machine of Russian dictator Vladimir Putin.

Instead, the West is imposing sanctions against Putin and his oligarch cronies to wage an economic war against the country.

Sanctions are starting to grip the markets as governments and multinational corporations squeeze the lifeblood from the Russian economy.

The measures are already crippling Russia. London-listed shares in the MSCI Russia ETF hit a new low after dropping 33 per cent in a day, and shares in the country’s biggest lender, Sberbank tumbling from $9 last week to $0.21.

Russia was only too happy to welcome Western businesses and brands after the fall of communism three decades ago. But in response to Putin’s military aggression in Ukraine, business is pulling out.

So how does this impact investors?

Keep Calm And Don’t Panic

Where you are on your life financial journey will shape your reaction as an investor. Certainly, don’t panic.

If you are close to retirement, your portfolio may not have time to recover fully, but a sensible buying strategy and diversification should provide some shelter from the worst losses.

If you are younger, with a decade or more of saving and investing ahead, then the likelihood is your portfolio will have plenty of time to recover. The question to ask is will the markets rise higher than they are today by the time I retire? The answer is almost certainly yes.

“Logically, investors should carry on buying as markets fall,” said Nigel Green, CEO of one of the world’s leading financial advice firms, deVere Group.

“Markets were hoping for a more stable time this week following the previous two of turbulence. However, events are moving fast in the Ukraine-Russia crisis and this, naturally, has an impact. We can expect markets to remain volatile as they will have knee-jerk reactions over the next few days as the situation develops.

Economic Battlefields

“We’ve seen this in action with the S&P 500 closing in correction territory on Tuesday, but Asian markets are mostly higher on Wednesday, as traders added stocks at lower prices following the recent sell-offs. European markets also edged up at the open, and US futures have nudged higher.

“In terms of what investors should do against a flurry of worrying headlines on major geopolitical issues, do not sell in a panic, or buy everything because it’s cheap. For most long-term investors, it is to keep calm and carry on.”

Oil and gas are one of the major economic battlefields. Russia is one of the world’s largest oil and gas exporters – mainly to Germany and Eastern Europe. The Germans have already tied up a new gas pipeline in red tape, so supplies are held up.

Shell, BP and ExxonMobil have promised to divest their significant stakes in-state energy providers Rosneft and Gazprom. It’s not clear if the companies will write off their investments as multi-billion pound losses or try and sell them to recoup some value.

Hollywood Cuts Ties With Russia

Hollywood has cut production and distribution of new films with Russia. Disney, Warner and Sony have cancelled cinema and TV showings, while Netflix has suspended production in the country.

Technology is a crucial market for some of the world’s biggest corporations.

Apple has stopped selling computers and gadgets. Facebook, Snapchat and other social media companies have stopped accepting advertising in Russia and Belarus. Google and Apple have updated map services to stop showing traffic updates to aid civilians fleeing the conflict and hamper Russian efforts to intercept them.

Dozens of Russian state-sponsored news services can no longer broadcast to Europe or access social media to halt fake news from the Kremlin.

Western stores and brands are leaving Russia in droves, including clothing brands H&M, Burberry and Nike. Many stores are halting trading because they cannot guarantee stock levels due to sanctions.

Chris Weafer, chief executive of consulting firm Macro-advisory Limited, has lived in Moscow for nearly 25 years.

He said: “Companies do not want to be associated with the Russian regime and what’s happening in Ukraine. Their Russian business may be profitable, but the rest of the world is more important when it comes to a reputational risk like this.”

Sport Ratchets Up The Pressure

Russia’s becoming a pariah in the world of sport, too.

Football has kicked out the national team from the 2022 Qatar World Cup, 2024 qualifying matches and European club competitions, like the Champions League. In an attempt to dodge the expected freezing of his assets, Russian billionaire Roman Abramovich is trying to sell World Club Champions Chelsea for £3 billion.

The International Olympic Committee has banned Russian athletes from all competitions – including this weekend’s Paralympic Winter Games in China.

Formula 1 has pulled out of this year’s Russian Grand Prix and terminated a contract with the racetrack at Sochi.

Carmakers Stop Russian Exports

Cars are Britain’s largest export to Russia but account for less than one per cent of the combined output of UK manufacturers.

Jaguar Land Rover, General Motors, Aston Martin and Rolls Royce have all halted delivering vehicles to Russia. Construction equipment maker JCB has also stopped exports.

Further afield, the world’s largest carmaker Toyota has pulled out of Russia, joined by Honda and Mazda. Toyota is Russia’s most popular car brand, making 80,000 vehicles a year in St Petersburg.

Airlines have only just pulled out of a tough two years thanks to coronavirus lockdowns and now find they are at the forefront of sanctions against Russia.

Flights from the US, UK and European Union are banned from Russian airspace – as are Russian airlines from North America and Europe. Japan Airlines have stopped flying to Russia and Europe.

Cryptocurrency And Sanctions

Obeying sanctions is proving to be more complicated for cryptocurrency traders and exchanges.

Russia has been a big player in crypto since China kicked out Bitcoin miners, but orders from governments to freeze wallets linked to Russian traders are proving more difficult to police.

The underlying principle of cryptocurrency is independent digital assets are beyond the control of central banks and governments – but breaking sanctions is a serious criminal offence that can lead to significant fines or jail time.

Ukraine’s Deputy Prime Minister Mykhailo Fedorov asked major crypto exchanges to block the accounts of Russian users together with those of Russian and Belarus politicians.

The fear is many wealthy Russians could try to bust the sanctions by switching their fortunes into cryptocurrency.

Founder and CEO of one of the largest exchanges, Binance, Changpeng Zhao refused.

He said: “”We’re not against any people. We differentiate between the Russian politicians who start wars and the normal people. Many normal Russians do not agree with war.”

Kraken, another large exchange, has also refused the Ukrainian request.

The price of Bitcoin has improved a little since the start of the conflict, but not enough to confirm cryptocurrency is a new store of wealth in bad times, like gold.

A week ago, the crypto was trading at $25,000. The price has floated up to $43,000.

Gold traded at around $%1,800 per ounce in February and has risen to $1,928.

The FTSE100 in London ended February at 7,458 and currently stands at 7,366.

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