NEWS & SNIPPETS
RUSSIA: IMPLICATIONS OF INVASION By Franklin Templeton Emerging Markets Equity team Investors’ worst fears about Russia’s intentions toward Ukraine have materialised following Russian President Vladimir Putin‘s announcement that he is sending troops into the country to “demilitarise” the nation. This follows his recognition of the Lugansk People’s Republic and the Donetsk People’s Republic as independent and sovereign states. There was a period when the crisis could have been resolved by negotiations and diplomacy, and possible limited penetration by Russia into rebel held territories in Ukraine. Our view on investments in Russian companies prior to this strife was constructive, with diversified exposure to the market, including in the energy and financial sector. The market is now more focused on the conflict than investment opportunities in the economy. Russia announced its intention to reach net zero by 2060 in the runup to COP 26 (the most recent United Nations Climate Change Conference). While not aligned to the Paris Agreement on climate change, it does signal a clear direction of travel. Engagement is the key to encourage Russia to bring its commitment forward to 2050 as well as setting out goals for 2030. Russia is one of the biggest oil and gas producers globally, it also has vast forests and generates 40% of its power from renewable sources including hydro, nuclear, solar and wind.1 The conflict in Ukraine does not detract from the need for engagement, which we believe is best achieved via ownership of companies that have shown a willingness to decarbonise, as opposed to divestment. Oil prices have spiked higher and gas prices are rising, which is inflationary in the short term and could result in stagflation if central banks raise interest rates too aggressively. Russia and Ukraine are major agricultural exporters of wheat and oil seeds. Russia and Belarus are the second and third largest producers of potash fertilizer. Belarusian potash exports are already sanctioned, which if combined with weaker supply of wheat from Ukraine, has global inflationary implications.
Suspension of Russian oil and gas imports could impact the near-term earnings power and ability to pay dividends in the energy sector. Higher domestic inflation could push up domestic interest rates, lowering the present value of future cash flows, putting downward pressure on stocks.
WHAT ARE THE RISKS?
All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investments in foreign securities involve special risks including currency fluctuations, economic instability as well as political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments. Issued in the U.S. by Franklin Distributors, LLC, 1. Source: BP Statistical Review of World Energy 2021.
EAP REGISTRATION DEADLINE EXTENDED By Kirsty Kilner, Partner, Tendai Bonga, Senior Associate and Nonhlanhla Payne, Trainee Attorney Webber Wentzel Environmental Assessment Practitioners have been granted an extension to 8 August 2022 to register with the Environmental Assessment Practitioners Association of South Africa. Unless they register, they cannot take primary responsibility for Environmental Impact Assessments. The deadline for the registration of Environmental Assessment Practitioners (EAPs) with the Environmental Assessment Practitioners Association of South Africa (EAPASA) was extended by a further six months on the eve of the 7 February deadline. This is the second extension granted in terms of the regulations for the registration of EAPs under section 24H of the National Environmental Management Act, 1998 in 2016 (Regulations). The Regulations aim to regulate a rapidly-growing profession of environmental practitioners in view of the growing demand for environmental assessments across various industry sectors. This is largely to be done through EAPASA, the designated registration authority in terms of the Regulations. EAPASA is responsible for ensuring the professionalism of EAPs and for
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improving the quality of environmental assessment practice in South Africa. After 8 August 2022, unregistered EAPs will not be permitted to hold primary responsibility for the planning, management, co-ordination or review of environmental impact assessments (EIAs) and environmental management programmes. If, however, the Proposed Amendments to the Regulations are promulgated in final form as currently worded, then unregistered EAPs will also not be able to perform a range of additional tasks in connection with, among other things, section 24G rectification applications and appeals contemplated under section 43 of NEMA. Clients are advised to ensure that their appointed EAPs register within the extended time period, as the legitimacy of EIA processes (and potentially of a range of additional tasks) that are run by unregistered EAPs after 8 August 2022 could be called into question. Unregistered EAPs who continue to hold primary responsibility for EIA processes after this deadline could also be prosecuted under the Regulations.
