Commentary on financial market developments – April 2018
Highlights:
- US: expansion of Russian sanctions list
- US: tariff war with China continues
Commentary:
One could simplistically say that stock markets generally did well in April, except for those countries that are not on good terms with Donald Trump. Russian equities have been hit hard by the extension of the sanctions list against some Russian oligarchs and their large companies. Chinese shares, for their part, are suffering from US tariff protectionism. And, logically, US equities have not been able to come out of all this well either, having significantly underperformed compared to European or Japanese ones. The only positive news in geopolitics, but a very positive one, is the summit between the leaders of South Korea and the DPRK. This could be a breakthrough in securing peace on the Korean peninsula.
At the beginning of April, the United States expanded the sanctions list to include 24 Russians and 14 legal entities. Shares of blacklisted companies are under heavy selling pressure because the sanctions require investors subject to US jurisdiction to divest these securities within one month, i.e. by May 7. As announced by the Treasury, this applies to EN+, Rusal and GAZ. The blacklisting means, among other things, that the US authorities will freeze all assets held by the individuals and companies concerned in US-administered territory. In addition, US companies are not allowed to cooperate in any way with the sanctioned people and entities. The shares of the aforementioned companies lost significantly and dragged other Russian shares down with them. In addition, Rusal has already announced that it may have problems with its loan commitments.
US-China trade relations are at a standstill following the imposition of tariffs on steel and aluminium imports and a series of retaliatory measures by China, followed by further tariffs imposed by the US to the tune of up to $100 billion. Trump claims that China’s trade policies and unfair practices have led to the collapse of US factories and cost millions of Americans their jobs. The fact that Donald Trump will not want to retreat from the path he has set is evidenced by his words that US investors will have to endure ‘a little pain’ in the context of the Chinese trade war.
It is also worth mentioning the high rise in oil prices, which is being driven by the continuing very bad situation in Venezuela and compliance with the OPEC cartel agreements.