Stocks that could rise on Russia-Ukraine conflict

The movement of Russia forces into disputed regions in Ukraine has sparked fears of an escalating conflict in Europe, sending equity markets tumbling. Undoubtedly, the situation is negative for economic growth, another driver of inflation and tighter monetary policy globally, and generally an omen for greater bearish sentiment. But despite the volatility and downside risks to stocks, there are pockets in the market that may see upside should the situation in Ukraine deteriorate further.

Here we look at 3 areas of the equity market that could outperform.

1. Gold stocks

Gold prices have surged recently as fears of war in Ukraine have grown. In essence, a Russian invasion will likely now be met with tough sanctions on the country, which would freeze financial assets and lock the country out of the global payments system. Because of this, investors have shifted into gold on the belief that many institutions and uber-wealthy will be forced to drop assets in foreign currency, and dispose of foreign currency reserves, and park it in an alternative safe-haven. For investors, there’s no need to look any further than the ASX for some major gold miners that will see profits lift because of a higher gold price – which may also be buffeted from a further drop in the Australian Dollar should conflict drag on global growth. The big gold stocks on the ASX include Northern Star, Newcrest Mining and Evolution Mining.

2. Energy stocks

At a time where energy prices were already scaling multi-year highs, the imminence of war in Eastern Europe is adding further upward pressure on prices, especially that of natural gas and oil. It’s expected that sanctions on Russia would lead to a retaliation by its government, whereby gas supplies are cut to Europe – Russia is Germany’s major energy supplier – leading to another supply shock that would ripple through global energy markets. Oil prices are also likely to be driven up by any conflict in Ukraine, with several major companies set to benefit from another tailwind to crude. There are several global energy companies whose profits may be set to lift on this situation. But again, the ASX houses several that an investor may which to expose themselves to, including Woodside Petroleum, Santos and Beach Energy.

3. Defence stocks

War can be a profitable business for some. And there’s certainly companies globally – and especially in the US – that stand to benefit from the greater military spending that will come about if an outright conflict develops and persists in Ukraine. Many companies with defence contracts with the US government have already been on the move since tensions began to simmer in Eastern Europe. Lockheed Martin is perhaps the most well-known US company that sees its bottom line boosted by military activity, and it is over 8% higher since the beginning of December 2021. But another company that derives profits from military spending include airliner Boeing.