MW As hopes grow for a cease-fire in Ukraine, J.P. Morgan looks at the impact on stocks

By Jamie Chisholm

Some of the region's stocks have already benefited from talk of a negotiated end to the conflict

The Russian ruble strengthened by more than 2% on Wednesday, to 94.267 per U.S. dollar, its strongest since November, after Moscow's release of imprisoned American Mark Fogel raised hopes that thawing tensions could help bring about a deal to end Russia's war against Ukraine.

The currency move highlights the sensitivity of markets to the chances of an end to the biggest European war since World War II, and teams of analysts at J.P. Morgan have laid out what they think this means for the region's stocks - some of which have already benefited from talk of a negotiated end to the conflict.

"While there remains much uncertainty regarding what shape a ceasefire would take and over what period of time, the teams ... identify stocks that may have run too far - or not enough - should a ceasefire materialize," the team led by head of equity research Sophie Warrick said in a note published Wednesday.

Here's a selection of some of their calls.

European utilities are likely to be seen as meaningfully disadvantaged by a cease-fire, according to J.P. Morgan.

"We expect the market to infer that a consequence of such a deal is that Russia sells pipeline gas into Europe again, over and above the current flows through Turkstream. In our view, restoration of pipeline gas flows into Europe would place significant downside pressure on European gas prices and subsequently on European power prices," they said.

Negatively impacted stocks would include France's Engie (FR:ENGI), Germany's RWE (XE:RWE) and the U.K.'s Centrica (UK:CNA), though J.P. Morgan also said any significant weakness would be a buying opportunity, particularly for the first two of those stocks, because it's unlikely that the level of preconflict energy flows from Russia would be re-established.

In the oil and gas sector, the companies with direct asset and business exposure to Russia may see greater positive impact, such as France's TotalEnergies (FR:TTE), BP (UK:BP) - which, for example, holds a 19.75% stake in Rosneft - and Austria's OMV (AT:OMV).

"Factoring in recent share price performance, we suggest: i) BP: the market has priced in this scenario to some extent as its shares have surged 10% in recent weeks; ii) OMV has potential to move further given the share prices have remained on the sidelines post [fourth-quarter] reporting and TotalEnergies which could benefit from a $1 [billion] legacy dividend," the analysts wrote.

One of the European banks that had the greatest exposure to Russia is UniCredit (IT:UCG), which used to get 6% of group net profits from that country. The Italian bank has been been winding down its exposure in compliance with sanctions and European Central Bank requirements. But J.P. Morgan reckons that with the market already discounting no contribution from Russia, UniCredit could benefit from a prolonged pause in fighting.

Other financial stocks with notable exposure to many countries in Central and Eastern Europe, such as Belgium's KBC (BE:KBC) and Austria's Erste Group Bank (AT:EBS) - with 45% of group loans in the region - will benefit from easing tensions. Erste's share price in particular is likely to see further outperformance, J.P. Morgan said.

Europe's defense stocks have risen by a weighted average of around 200% since Russia's full-scale invasion of Ukraine in February 2022, and so it is very likely they will pull back if a cease-fire is agreed to, the analysts said.

However, the U.S. bank reckons structural growth should continue. "The geopolitical environment has completely changed vs. three years ago. We are now clearly in a multi-polar world and most European leaders now acknowledge the need for much higher defense spending," they wrote.

They remain overweight Germany's Rheinmetall (XE:RHM), Italy's Leonardo (IT:LDO) and the U.K.'s Babcock (UK:BAB) in the sector.

A plan to rebuild Ukraine's infrastructure would increase demand in the automotive, capital goods and construction sectors. Suppliers of trucks and construction equipment such as Sweden's Volvo (SE:VOLV.B), Italy's Iveco (IT:IVG) and Germany's Daimler Truck (XE:DTG) and Traton (XE:8TRA) should be positively impacted.

Finland's Metso (FI:METSO) and Sweden's Sandvik (SE:SAND) will see extra demand for crushing and recycling equipment, while Germany's Siemens Energy (XE:ENR) and Denmark's Vestas (DK:VWS) will stand to benefit from investment in Ukraine's energy sector. Another key beneficiary could be cement maker CRH $(CRH)$.

In steelmaking, the Dutch ArcelorMittal (NL:MT) is most directly exposed, because it owns facilities in Ukraine, which are operating at 30% utilization that could swiftly move to 60% on a cease-fire. "In a scenario of a Russia-Ukraine ceasefire we would expect ArcelorMittal shares to have >10% share price upside, but also we would expect upside across our European Steel coverage," J.P. Morgan said.

-Jamie Chisholm

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February 12, 2025 10:14 ET (15:14 GMT)

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