The geopolitical impact of Russia’s invasion of Ukraine has forced analysts to reconsider their forecasts ahead of today’s FTSE index reshuffle.
This event has grown in importance over recent years, according to Ben Laidler, global markets strategist at eToro, who said that almost $10trn is in funds that directly track indices like the FTSE 100.
“This number has more than doubled in the past five years, making these index rebalancing events increasingly important,” he said.
At this week’s reshuffle, the main catalyst for change is the breakout of war in eastern Europe, which has had significant impacts on markets as investors have sold out of stocks with links to Russia and turned to safe-haven assets.
One example of the latter is gold mining company, Endeavour Mining. Shares are up 20.6% over the past month and the stock is now set to enter the FTSE 100 index.
Demand for the precious metal is heightened in times of economic uncertainty and the company’s location in Western Africa means operations are unlikely to be affected by tensions in Europe.
Conversely, fellow gold miner Polymetal International is down 66.4% over the past five days. The firm, which has some operations in Russia, uses its banks to distribute its goods overseas.
Most Western countries are cutting off the Russian financial sector and while some banks have been denied access to the SWIFT payment system.
It will likely lose its status as a FTSE 100 company as result along with fellow mining company Evraz with share prices down 45.9% in the past five days.
Also impacted by the war in Ukraine was EasyJet, whose plans to land in the FTSE 100 index in this month’s reshuffle were blown off course when conflict in the region limited flight travel across Europe.
As the threat of Covid receded and international borders began to reopen, sentiment for air travel companies was improving but re-directed flights around Ukraine and potential ‘no-fly’ zones for Russian flights have held back the recovery.
Shares in the company have dropped 16.9% since the invasion began and the highest oil prices in eight years of £108 per barrel could add a significant expense to the company.
Susannah Streeter, senior investment and markets analyst at Hargreaves Landsdown, said: “Longer term, it is higher fuel costs that are likely to weigh on the sector once the immediate headache of re-routing flights is eased. The fear is that prices will head up much higher if Russia retaliates to sanctions and weaponises oil, sharply limiting supplies to Europe.”
Turning to the FTSE 250, one contender to leave the mid-cap index is Cineworld, whose shares are down 65.6% over the past year as the chain struggles to recover to pre-pandemic revenue.
Furthermore, the company recently lost a court battle with Canadian rival, Cineplex and is paying millions of pounds in damages.
The legal battle began shortly after the pandemic hit, when Cineworld abandoned its proposed merger of the Canadian chain, which would have made it North America’s biggest cinema operator.
Streeter said: “It’s unlikely that ticket sales will ever fully recover to the heady days of the past, given the huge shake-up of the movie industry. The footprint of the large cinema chains is set to contract further and there is likely to be a further refocus on smaller more luxury venues, providing the high-end cinema experience that people are unable to get at home.”
Nosediving sentiment has led it to become the UK’s most shorted company, with 8.6% of shares on loan by investment firms.
Share value of company over past year
Source: Google Finance
While the pandemic cut off revenue for cinemas, transport company, Clipper Logistics thrived on the spike in e-commerce sales.
Streeter said that its partnerships with big brands like ASOS and Marks and Spencer helped “position itself right at the heart of British supply chain” and its success has not gone unnoticed – share valuations have spiked since US rival, GXO Logistics showed an interest in buying the company.
If it does enter the FTSE 250 at the reshuffle, it may not be for long should it accept a bid offer from the US company.
Share value over the past five years
Source: Google Finance
Another contender for the FTSE 250 is Howdens Joinery, a kitchen supplier that has performed resiliently throughout the pandemic.
With many UK households sitting on savings from two years of limited spending, demand for kitchen renovations has increased and the company is extending its depots to 950 as well as expanding operations in France and Ireland this year.