Evraz PLC (LON: EVR) is a major coal and steel operation based out in – mostly – Siberia. A major shareholder is Roman Abramovich who as we all know is also the owner of Chelsea.
The worry is that Russia really is about to invade Ukraine. Given that Evraz has operations in Ukraine then we might see the worry here. Except that’s not it, not it at all. Sure, having a war going on around a factory isn’t all that helpful but that’s not what is worrying. Nor is any idea that if Russia does take control then those Ukrainian assets will be allocated to some other ownership. For no one does think that Abramovich has problems with Putin.
Now the worry is working the other way for Evraz. If Russia does invade then will there be substantial sanctions against the Russian economy?
We already know, because Biden and Boris have said so, that there will be sanctions – if the invasion of Ukraine does happen – against the regime, against those close to Putin and so on. But Evraz is usually – as Abramovich also usually is – thought to be outside that immediate circle. But what if extensive sanctions are imposed upon the Russian economy, not just the central oligarchs? That’s what the current market worry is.
So, that’s the reason for the 35% fall in the Evraz share price this morning. For us as traders, as ever, the important thing is what comes next?
There’s unlikely to be an immediate bounceback. For the risk of an invasion still seems to be there, so therefore the risk of wider sanctions still is. That can only fade over time as an invasion turns out not to happen. Given that this has been several months building that means that it might well take several months to die down.
Of course, if an invasion does happen then we might well expect another cratering of the Evraz share price. So too if an invasion is followed by those wider sanctions.
Trading this, therefore, becomes an exercise in politics. What is the likelihood of an invasion? If low to none then we can go bull and expect a gradual recovery in the Evraz share price. Is, that is, Putin simply playing games to get his own way on the Nordstream pipeline?
If an invasion is thought to be likely but significant sanctions won’t be imposed as a result then perhaps the current price might be about right. And if we think that significant sanctions would be imposed then perhaps we should be bear Evraz.
But note what the problem here is. This all has nothing at all to do with the economic or financial performance of Evraz itself, nor the wider issues in the global metals markets. This is purely about reading what the Kremlin is about to do, or not, and what the global reactions to it might be. Which is something of a difficult thing to trade as where do we find out the truth about those things?
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Tim Worstall is a freelance writer specialising in economics and the financial markets.