Positive stock markets returns were seen either during or in the months and years following the wars in the Gulf, Korea and Vietnam, which supports the case for investing in shares amid Russia’s invasion of Ukraine, according to Berenberg.
Despite “visible risks” and “heightened uncertainty” of the situation – and the domino effect on the global economy – the historical precedent of previous conflicts and various data-based signals support the argument for investors investing in equities on a six-to-12-month timeframe, analysts Jonathan Stubbs and Edward Abbott said in a note on Wednesday.
However, the analysts cautioned that given the invasion had no visible end in sight and with the multiple potential risks, their caution about near-term risk meant that they suggested investors follow “macro-agnostic” strategies.
In other words, they recommended buying shares in companies where the investment case is supported by self-help strategies that management have in place and/or expected potential for capital return, as well as focusing on cheap stocks with 'defensive' qualities and 'whatever-weather winners'.
“Hedging macro risk is likely to remain important for equity investors in the near term,” the analysts said. “We have highlighted various macro-agnostic strategies that attempt to do this; these strategies use valuation, balance sheet, fundamentals or self-help qualities to build a hedge against macro risks and macro directionality, eg bond yields up, bond yields down.”
A total of 36 companies are seen as offering such potential, of which nine are in the FTSE 100 or FTSE 250.
AstraZeneca PLC (LSE:AZN) and Tate & Lyle PLC (LSE:TATE) are picked among the classic defensive stocks for both self-help and capital appreciation potential, while the more cyclical Shell PLC (LSE:SHEL, NYSE:SHEL, EURONEXT:SHELL) and NatWest PLC are seen as having capital appreciation attractions.
Otherwise, among businesses that don’t fall into cyclical or purely defensive categories are Marks and Spencer Group PLC (LSE:MKS) and Unite Group PLC (LSE:UTG) in the self-help category, B&M European Value Retail SA (LSE:BME) and Dunelm Group PLC (LSE:DNLM) in the capital appreciation basket, and with QinetiQ Group PLC (LSE:QQ.) seen as offering both.
Of the trio that are perceived to have both self-help and capital return, pharma giant AZ has a strong record and Berenberg forecasts “premium growth and superior R&D returns” in coming years with “many near term pipeline catalysts which could unlock further value”.
Food manufacturer Tate & Lyle's shares are trading on a big discount to peers, despite the business experiencing strong demand, managing inflation well, and generating self-help by cutting costs as it separates its commodity business, which is due to lead to a special dividend payment post separation.
Shares in QinetiQ, the defence technology group, are expected to benefit from a re-rating after significantly underperforming since the end of last year when a complex project led to a write-down, but a January update confirmed the issue is bounded and that its US business recovery is on track.