FTSE 100 price shocks after year of war in Ukraine

It’s been a year since Russia invaded Ukraine, and its impact continues to be felt far beyond the battlefield. Our City writer explains how UK share prices have responded to the conflict over the past 12 months.

Russia’s invasion of Ukraine a year ago on Friday this week has had a far-reaching impact for investors after it created price shocks, a new energy landscape and a rebound in defence spending.

The events led the FTSE 100 index to a low of 6,707 by mid-October as traders focused on the threat of winter power shortages, a consumer spending slowdown triggered by sky-high energy bills, and the prospect for interest rates to move significantly higher.

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Some of those worries have eased in severity since then, with China’s Covid reopening among other factors recently helping the FTSE 100 over the 8,000 threshold for the first time.

The outperformance of London’s top flight in such a tumultuous year for global markets reflected its exposure to the commodity sector and oil in particular, as well as a large number of defensive shares with pricing power to offset inflation.

The strength of the safe haven US dollar also added support to an index dominated by companies that make a lot of profit overseas. Perhaps unsurprisingly, BAE Systems (LSE:BA.) has been the best performing blue-chip stock in the year since the invasion.

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Conditions have rarely been so good for BAE as it racked up £37 billion of orders in 2022, including from governments looking to respond to the elevated threat environment.

Most major defence programmes tend to be over a long cycle, meaning the contracts secured will be traded for many years and give the company long-term growth visibility. The shares, which stood at 593p prior to Russia’s invasion in February 2022, recently set a record high of 908p and are up 50% overall.

BP (LSE:BP.) and Shell (LSE:SHEL) are not far behind at more than 41% and 26% higher respectively over the past year, driven by their enhanced shareholder returns as the oil giants benefit from elevated oil and gas prices.

Russia's pivotal role in the global energy market pushed the price of Brent crude to $105 a barrel on the day of the invasion and above $120 a barrel a few days later, potentially choking the economy's pandemic recovery.

While the price is now back near $80 a barrel, the world has changed for Big Oil as companies including BP scale back their climate change targets in order to focus investment on delivering energy security and affordability.

Other beneficiaries have included British Gas owner Centrica (LSE:CNA), whose shares are above 100p for the first time in three years after a rise of 36% since the invasion.

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In total, there are 33 FTSE 100 companies up more than 10% since the war started and another 25 current blue-chips whose valuations have fallen by 10%. This doesn’t include the likes of Polymetal International (LSE:POLY) and Roman Abramovich-backed steel producer EVRAZ (LSE:EVR) after they became casualties of the sanctions against Russia.

FTSE 100 biggest risers in the past year

Source: SharePad. Share prices as at close of business on 22 February 2023.

Those 25 fallers included rates-sensitive stocks such as the grocery technology business Ocado Group (LSE:OCDO), which lost 53% of its value as the worst-performing FTSE 100 company.

Baillie Gifford’s Scottish Mortgage (LSE:SMT) Investment Trust, whose portfolio includes Tesla Inc (NASDAQ:TSLA) and Amazon.com Inc (NASDAQ:AMZN), also dropped 26% as investors fell out of love with mega-cap technology stocks due to central banks ramping up interest rates in order to bring inflation back under control.

The surge in mortgage bills and building costs continues to derail housebuilders, with Persimmon (LSE:PSN) down 41% and Taylor Wimpey (LSE:TW.) and Barratt Developments (LSE:BDEV) off by around 20%. The demand impact caused by higher property costs has also been a big negative for the real estate sector, particularly for warehouse provider Segro (LSE:SGRO) at 34% lower.

The pressure on margins from much higher prices has been felt in valuations across the FTSE 100, including at Admiral Group (LSE:ADM) where the car insurer has faced much higher claims costs.

For many investors, however, the feeling may be that the performance of the FTSE 100 could have been much worse. A quarter of stocks in London’s top flight tumbled by 5% or more on the day of Russia’s invasion, with some popular stocks including Rolls-Royce Holdings (LSE:RR.) initially going full circle to revisit the levels seen at the onset of the pandemic in spring 2020.

FTSE 100 biggest fallers in the past year

Source: SharePad. Share prices as at close of business on 22 February 2023.