The Week - UK (2022-02-19)

40 CITY

THEWEEK 19 February 2022

Talking points

Formarkets,it wassomethingofa

“StValentine’sDaymassacre”,saidThe

TraderinInvestors’Chronicle.Mounting

tensions betweenRussiaandUkraine

werelargelyshruggedoff earlier this

year;but reports that awarcouldstart

“withindays”concentratedminds.The

FTSE 100 lost 2 %onMonday;shares in

Frankfurt andParisweredownbymore

than3%.Banks tookahitonfearsthat

Russia“couldbe cut offfromtheSWIFT

paymentsnetwork”.Travelstocks,

includingIAG,TuiandWizzAir,were

whacked.Andalthoughthepriceof

Brentcrude futures rose above$ 96 “to

thehighestinalmosteightyears”,BP

sharesfell due toits stakein Rosneft,the

Russianenergygiant.WallStreetwas

alsogrippedbygeopoliticaljitters,saidDealBookinTheNew

YorkTimes.Thesituationeased afterRussia’spledge thisweek

to withdrawtroops. But “Westernofficialshave cautioned that

an invasionofUkraineisstillpossible”,and“marketsarestill

worried”:USstockfuturesfellonWednesday.

Evenif Russiantanksdorollacrosstheborder,said Matthew

LynnonSpectator.co.uk,thefinancial“carnage”won’tlast.

“True,themost seriousarmedconflictonEuropeansoilsince the

endof WWIIisaserious matter.But geopolitical eventsrarely

makemuch differencetothemarketsformore thanafewdays.”

Wesawthatafter 9/11,after JFK’s

assassination, after theSuez crisis,and

afterNorthKorea invaded theSouthin

1950 .Granted,aRussianinvasioncould

have “long-termconsequencesforthe

globaleconomy”–particularlyif it’s

part ofa“pactwithChina”that marks

thebirthof aSino-Russianeconomic

order,threatening USdominance.But

that “wouldplayoutoverdecades”;

it’shardlyanimmediatethreat.

Therealproblem,saidDarrenDoddin

theFT,istheimpactof anxiety onexist-

ingmarketconditions.Incommodities,

Ukrainetensionshaveworsenedan

alreadyworryinginflationary“crunch”.

GaspricesinEurope(wherelowerflows

fromRussiahaveleftstoragefacilitiesonlyathirdfull) havebeen

drivenstillhigher.SanctionsonRussia,meanwhile,couldhavea

severeeffectonrawmaterialsprices, especiallymetals–supplies

ofwhicharealreadybadlydepleted.“Majorexchangeshave less

thanoneweek’ssupplyof copperstocks”; suppliesofaluminium

(nowata13-yearpricehigh)are alsolow.“Thisisthemost

extremeinventoryenvironment,”noted aGoldmanSachs analyst:

it’s“unprecedented”.Theimpactof waroninvestmentportfolios

“maybehardto discern”,saidJonSindreuin TheWallStreet

Journal–butit wouldcertainlystokealreadyrampant inflation.

“Theoptimumoutcomeisthatnobodypushes thebutton.”

Issueof the week:Ukraineand the markets

The NFTbonanza:whatthe paperssay

●GoingApe

“Ifyouseethis,you’re

very early.”Theline has

becomeafamiliartropein

thefrothymarketfornon-

fungibletokens, “where

block-chainpowered proof

ofownership hascreated

ahyper-speculativedigital

artmarket”,saidTim

Bradshawinthe FT.Being

“early”in theunregulated

worldofNFTscanbe

highlylucrative.Thefirst

supportersofanewprojectareoften

rewarded with“whitelist”access before

thetokengoesonsaleto thegeneralpublic

–meaning apurchase costing“a few

hundreddollars” canbe “resoldfor

thousandsjusthourslater” if all goes

well.Still,“intheincreasinglydesperate

scrambleto findthe nextBored ApeYacht

Club”(the“iconic” NFTcartoonish series,

whichfrequentlysellformillions)“the

opportunitiesfordue diligenceare

limited”. Andfraudis increasinglyrife.

●MonkeyBusiness

So is money-laundering,said Tristan

Kirkin theLondonEveningStandard.

Lastweek,aNewYorkcouple –Ilya

Lichtenstein andHeatherMorgan (a

rapperwhodubs herselfthe “Crocodileof

WallStreet”)–wereaccused of usingfake

IDsto convert astashof bitcoinstolenfive

yearsago into otherdigital currencies and

Diggingdeep

The bestresponseto inflationand the

commoditiescrunchis to “ownthe

problem–preferablyin the formof

profitablecompaniesthatpay out real

moneyin real dividends”,saysMerryn

SomersetWebbin the FT. The good

newsis thatthe UK market–long

considered“tooresourcesgrubbyand

Brexity”by internationalinvestors–has

themin spades.Hereare somepicks:

i3 EnergyAn oil and gas minnowwith

secureoperationsin Canada.Expected

to yieldnearly6% this year,and is

movingto pay monthlydividends.

AtalayaMiningHas exposureto

stablecopperproductionin alow-risk

jurisdiction(Spain).Up 40%sincelast

yearbut,witha5.4%yield,“worth

hangingon to”.

KenmareResourcesAmineral

sandsminer,withan operationin

Mozambiqueand apolicyof payingout

20%of after-taxprofitsin dividends.

PolymetalAgold and silverminer,

“withalittle extrainflationprotection

builtin”. Carrying“extrarisk”because

of operationsin Russiaand Kazakhstan.

But that’sreflectedin its 8% yield.

PanAfricanResourcesAmiddle-sized

goldminer,yielding6.1%,withlow

debtand operationsin SouthAfrica.

BlackRockWorldMiningTrustAgood

“one-stopshop”for thosewhowantto

avoidthe risk of holdingindividual

stocks.Yieldsaround4%.

Theimmediateshock mightbe transitory, buttheeconomicfall-outwouldn’tbe

Ukrainiantroopstestinganti-aircraftmissiles

BoredApeYachtClub:“iconic”

NFTs.InBritain,the

taxmanisonthe case,

saidTomRees in The

DailyTelegraph.Ina

recentsting,HMRC

seized“itsfirst NFTs”,

claimingtheywerepart

of a“sophisticated”

VATscamtodefraud

thetaxmanof£1.4m.

Crypto andNFT

dabblersbeware:the

taxmanisn’tjust

“steppingupits

clampdownoncriminalgangshiding

money”,but alsoonregularinvestors

unaware that they maybe evadingtax.

Most investorswhohave sunkfundsinto

theseassetswill be liable to payCapital

GainsTax (CGT)if they exceedtheir

annual£12,300allowance whenthey

sellor usethemin atransaction.In

otherwords,“gainsshouldbetreated

like thosemadeonother investments,

such as shares”.

●Blockbuster

In thespaceof ayear, NFTshaveexploded

fromobscurity to a$40bnmarket. All

credittoHMRCfor being ontopofthe

situation,said EmmaAgyemanginthe FT.

AsDavidCarlisle of theblockchainanalyst

Ellipticobserves:“theUKisdemonstrating

increasedsophisticationin its abilityto

seizecrypto assets”.There’s anewcop

ontheblock.