Russia/Ukraine: what is the financial impact after one month?

It has been just over a month since Russia began mobilising troops into Ukraine. Apart from the devastating human impact, it has also affected the global financial markets – so let’s take a closer look and see if we should be worried.

The conflict has set the trading markets into somewhat of a frenzy and there have been several different approaches to try to deal with the situation. With oil and gas prices being pushed higher, inflation rising to multi-decade highs and general uncertainty, there has been a rush to the well known safe-havens in times of crisis: bonds, gold and Swiss Francs – which have surged in value.

It will also come as no surprise that the commodities sector touched record highs recently. Russia and Ukraine together hold a significant share of the global commodities trade. Between them, they supply 30% of the global wheat exports, with Ukraine considered as the ‘breadbasket of Europe’. Russia supplies 10% of the world’s nickel and they both also supply extensive quantities of palladium, natural gas and corn.

Apart from the expected impacts above, Russia’s invasion of Ukraine will likely force companies to reassess their global supply chains. The chief executive of the world’s largest asset manager, BlackRock, warned in his latest annual letter to shareholders: “the Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades”. He added that the repercussions are that companies and governments will reorient their supply chains back to their own soils, with less dependency on other nations. This could obviously bring benefits for the home countries, whilst negatively affecting the likes of China and India who have long been at the centre of the manufacturing world.

Moral dilemmas

Indeed, the conflict has provoked many moral dilemmas. Before the invasion, the booming business of ESG (environmental, social and governance) investing was for investors who prided themselves on trying to do ‘the right thing’ with their money. This focussed primarily on excluding companies who manufactured weapons or contributed to carbon emissions. However, what counted as the right thing to do then has now suddenly U-turned: western governments have put on hold their carbon-cutting efforts and chosen to become major suppliers of weapons to Ukraine in order to help them defend themselves against Russia, and trading with Russia is now widely regarded as a moral outrage, even where it remains legal.

Dependency on carbon fuels has long been debated, with green and renewable energies at the forefront of most government’s agendas. Although many countries have progressively built up their wind and solar farms, they do not yet produce enough of their own energy to power the entire nation and therefore, such a sudden cut from Russia’s supply has already forced the likes of Germany to reopen some coal mines. Furthermore, the UK has just cut taxes on road fuel and is shielding households from rising energy costs, all while encouraging Gulf States to drill more oil – which is in direct contravention to their pledge from the Glasgow climate summit they hosted just five months ago where world leaders agreed to phase out fossil fuel subsidies.

So, what should you do?

It is notoriously difficult to ignore your emotions and moral compass when constantly faced by the human tragedy of war in the news. Conservative investors will nestle themselves in a safety blanket of gold and Swiss Francs, whereas risk-takers will be on the lookout for a knockdown-price bargain, capitalising on the disruptions caused by the war. However, a seasoned investor will know to keep their emotions in check and to let logic prevail.

As per my last commentary on the conflict, with a medium to long-term diversified investment strategy already in place, there is no need to make any knee-jerk reactions. Simply stick to it and, as history has shown us many times before, market volatility happens all the time for myriad reasons, but staying the course comes out on top more often than not.

Disclaimer: The opinions in this article are solely those of the author and should not be seen as investment advice. Everyone’s circumstances, objectives and existing portfolios are different, and as such, should be analysed individually. If you would like to review your current investments, please do get in touch for a free initial consultation with one of our experienced wealth managers.

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