Markets shaken by war threat, HSBC delivers a mixed bag, and Smith & Nephew appoints new boss

“The threat of war does not create a positive environment for investors, and so we have seen another big sell-off on global markets. The movements include a 7% drop in Russia’s RTS index and a 1.7% decline in Japan’s Nikkei 225 index,” says Russ Mould, Investment Director at AJ Bell.

“Investors are very much in risk-off mode, dumping commodity producers – particularly those with exposure to either Russia or Ukraine – as well as tech and travel stocks.

“Russia-focused gold miner Petropavlovsk has fallen 29% in two days on the London market, simply because of where its assets are based. Wizz Air has slumped thanks to its focus on Eastern Europe, and because airlines in general face significant cost pressures thanks to another 3.5% leg-up in the oil price.

“Brent Crude was just over one dollar away from hitting $100 a barrel as the market feared disruption to oil supplies.

“The threat of Russia invading Ukraine was clearly visible at the end of 2021, but most investors were more concerned about inflation and how fast interest rates might go up. Now the threat of war is very real, and investors will need to add it to their growing list of things to worry about. This could prompt another bout of panic and lead to heightened market volatility.

“Investment portfolios will likely be reappraised, and investors might increase their weighting to cash for fear of another shock running through equity markets.”

HSBC

“HSBC’s results are a real mixed bag, but that is commonplace with most banks these days. In a nutshell, commercial banking is doing well, and its returns target might be achieved a year ahead of plan.

“However, there are some headwinds in its core territory of Asia including uncertainty around China’s property market, and the share buyback scheme has only been extended by up to $1 billion, much less than some analysts had expected.

“Banks in general are more optimistic about their earnings outlook thanks to rising interest rates in various parts of the world. Higher rates give them more of a chance to increase their net interest margins, the difference between what they earn on loans and pay out on savings deposits.

“The rising rate situation is not a clear-cut golden goose for HSBC. Its strategy is focused on carving out a bigger position in Asia, and China recently bucked the trend by cutting its interest rates. Fears there could be more pain in the Chinese property sector also clouds its outlook.

“Furthermore, inflation around the world is causing problems for consumers and businesses – which are its end markets.

“A focus on wealth management in Asia might spare it some of the pain, as rich clients may not be too affected by inflationary pressures. But the bank guides for a weaker wealth performance in the first quarter of 2022, so like most of its peers HSBC is having to do a lot of juggling to find pockets of strength across its business.”

Smith & Nephew

“Medical products firm Smith & Nephew needed an end to the pandemic and the sense of a fresh start was underlined alongside its latest full year numbers as the company announced the departure of CEO Roland Diggelmann.

“The market seemed to like the news and the identity of his replacement, marking the shares higher in early trading on Tuesday despite a slight miss to analysts’ estimates on earnings and the wider market volatility linked to Ukraine.

“This probably reflects the weak share price performance under Diggelmann with the stock down more than a quarter since he started in November 2019.

“His tenure coincided almost entirely with Covid which hit the elective procedures which help drive demand for Smith & Nephew’s hip and knee replacements. Coming out of the pandemic supply chain problems have hampered the rehabilitation process.

“The new man at the top is Deepak Nath who comes from the well-regarded but badly-named Healthineers unit within German multinational conglomerate Siemens.

“Investors will be hoping Nath can repeat the growth and margin improvements he achieved within that business at Smith & Nephew.

“He should at least enjoy a more favourable backdrop than Diggelmann faced, with strong demand expected as healthcare systems look to clear a substantial backlog of patients built up thanks to Covid.

“Nath may also look to expand beyond the company’s current focus on orthopaedics to boost areas like sports medicine and advanced wound care as well as targeting acquisitions.”

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