Capital goods is the sector with the highest direct exposure to Russia on the Stock Exchange

Companies in the capital goods sector are among the main Brazilian companies with shares traded on the Stock Exchange with some type of more direct commercial exposure to the Russian and Ukrainian markets, which face a moment of strong turmoil due to the war between the countries.

Weg, from Santa Catarina, whose shares are part of the Ibovespa stock index, in addition to Randon and Iochpe-Maxion, are among the main publicly traded companies in the local market that carry out commercial activities in the region, according to a survey by stock analysts at BTG Pactual.

“We remember that the direct impacts [para o mercado brasileiro] are small, as only capital goods companies have sales exposure to the region today. However, as usual, the growing instability should affect global commodity prices, bringing secondary impacts to our investment theses”, say the bank’s analysts, in a report.

XP Investimentos analysts, in turn, point out three major impacts for capital goods companies in the context of the Ukraine-Russia conflict: inflationary implications, reflecting the increase in commodity prices and the devaluation of the real; effect of the deceleration of the European economy on companies most exposed to the region; and risk aversion on the part of investors.

Despite the exposure, analysts point out that the impact tends to be limited – in the case of engine maker Weg, which has a commercial office in Russia, for example, business in the region represented just 0.3% of R $3.6 billion recorded in 2021.

XP analysts see in Weg’s shares a more defensive character within the sector. In the opinion of analysts, despite the reduction in demand for the company’s engines in the face of more pressured global inflation, Weg tends to benefit from an eventual devaluation of the real, given the strong export profile of the business, especially to the United States.

Weg’s shares operated at a steady high throughout the Exchange’s session this Wednesday (2) and closed with gains of 2.89%, at R$ 30.25.

“Weg supports all movements that preach peace and seek peaceful solutions to the conflict. We are present in Russia through a commercial subsidiary for the distribution of products manufactured in other countries. Until all the implications of the conflict and the extent of international sanctions, new business with Russia is suspended”, says the company in a statement.

BTG Pactual analysts also point out that Randon also sells products to the Eastern European region, but in a proportion that also represents only 0.3% of the company’s sales, which reported revenues of R$ 9 billion last year, a up 67% compared to 2020.

The shares of the manufacturer of bodies, trailers and railroad wagons closed the trading session on B3 down 1.51%, at R$10.45. When contacted, the company said it would not comment.

XP analysts say that while the depreciation of the real could benefit the company’s exports, lower inflation-induced demand in Brazil and cost pressures from raw material increases could play a major role in future operating results.

“Although it is worth mentioning Randon’s exposure to agribusiness, potentially benefiting from higher commodity prices, which should partially offset this more challenging economic environment in Brazil”, the experts point out.

Regarding Iochpe-Maxion, analysts at BTG Pactual say that the company also sells wheels in the Eastern European market, but, once again, the business represents only a fraction of its consolidated sales. “We assume it’s as small as the other companies, so below 1%.”

XP analysts, in turn, point out that Iochpe-Maxion is the company most exposed to the European continent and, therefore, the one that tends to be most impacted by conflicts in the Eastern European region within the sector.

They recall that the company has an industrial plant in Turkey that plays an important role in supplying its products to Western and Eastern Europe.

“The company’s profitability prospects could come under pressure if aluminum and steel prices rise in a tight supply scenario.”

Iochpe-Maxion saw shares on the Stock Exchange fall by 0.92%, to R$ 12.94.

Sought, the company reported being in a period of silence due to the disclosure of quarterly results on March 9.

Among the indirect effects brought by the war in Ukraine for Brazilian companies with shares on the Stock Exchange, analysts at BTG Pactual say that they must be mainly related to the increase in raw material prices in general.

“The increase in oil prices represents additional cost pressure for airlines, and we remind you that the segment is operating with low levels of hedging. [proteção] of oil today”, they say.

“We inform you that our associates do not operate flights that have the conflict region as their final destination and we carefully monitor the impacts on dollar and oil prices, which can increase even more the costs of the air sector”, says the Brazilian Association of Airlines (ABEAR), in note.

“In this period of high summer season in Brazil, most customers prefer to travel within the country. For the time being there is no impact in this sense”, says the travel company CVC.

Gol’s shares closed this Wednesday’s session down 3% and Azul’s shares retreated 1.78%, while CVC’s shares had a negative variation of 2.63%.

The Ibovespa, the main stock index in the local market, recorded an appreciation of 1.80%, at 115,173 points, boosted by commodity exporters such as Vale and Petrobras.

“Petrobras does not have assets in Russia, nor does it import fuels from this country, therefore, we do not see a direct impact on our import operations to supply the Brazilian market”, says the state company. When contacted, Vale did not comment.

Analysts at Itaú BBA estimate that the war in Ukraine should raise the costs of Brazilian companies in the food and beverage sector that depend on raw materials such as wheat and corn, the latter used as animal feed.

“Needless to say, there will be volatility in the capital markets and this calls for caution, but overall it remains an optimistic reading. [para o mercado local]despite the horrors of this conflict”, says André Perfeito, chief economist at Necton.

“We see Brazil as a market that should suffer less than others because of the large exposure to commodities. In addition, we should benefit from a positive flow of investors reducing exposure to Russia”, say analysts at XP. “The best strategy to follow at these times is to have cash, stay invested, keep diversification in the portfolio and calm down.”