Crisis Russia, Ukraine – Comments from Wealth Managers

Wealth management firms give their views on the fallout on global financial markets from Russia’s escalation in Ukraine.

Tensions between Russia and Ukraine have escalated following Russian President Vladimir Putin’s decree recognizing breakaway territories in eastern Ukraine as independent states. These regions are Russian-backed separatist regions, which have been fighting Ukrainian forces since 2014. Just hours after the declaration, Putin ordered the dispatch of troops to the two regions. While the Kremlin calls it a “peacekeeping” mission, the move has raised fears that Russia might want to wage war on Ukraine.

Uncertainty about Putin’s next intentions following Russia’s latest actions is now the main concern. The separatist decree and the deployment of Russian troops have already hit the markets and increased the risks of further sanctions and disruptions.

The US, EU and Ukraine said the Russian move was an escalation, and the UK sanctioned five Russian banks, Rossiya, IS Bank, General Bank, Promsvyazbank and Black Sea Bank, as well as three wealthy people, Gennady Timchenko, Boris Rotenberg and Igor Rotenberg. Germany has withdrawn its approval of the Kremlin-backed Nord Stream 2 gas pipeline, the first in a wave of Western sanctions against Russia.

Fund managers are reducing their positions in Russia.

Here are a variety of comments from wealth management personalities:

Steve Clayton, Select Fund Manager, Hargreaves Lansdown
Russian troops have not massed along the Ukrainian border to hold a bake sale. Whichever way it plays out, tensions and uncertainties are likely to stay hot for some time to come. The market will not appreciate any escalation or trust any settlement between the parties unless it is accompanied by a rapid demobilization of Russian forces around Ukraine.

Whenever international tensions erupt, money tends to rush to safe havens and the most important of these has long been the US dollar. The yen could also benefit. Japan stayed away from this argument. Cautious money tends to flow into less risky assets, so it looks like US Treasuries and JGBs could benefit.

Bank stocks could be under pressure. Effective sanctions will impact economic activity and banks will be where they are felt in the West. Lending volumes would also be hit, should tensions really mount, as cautious consumers and businesses will refrain from borrowing until they feel more confident.

The real message for investors is that in the long run, it rarely pays to worry about headlines. If it looks like stock prices are under pressure, go find a bargain.

Kunjal Gala, Emerging Markets Portfolio Manager, Federated Hermes
The prospect of sanctions against Russia is high and the potential of the Russian economy has weakened in the medium/long term, with the government focusing on geopolitical issues rather than issues plaguing the national economy and reforms.

It is also likely that Russia will pull out of major emerging indices, which will lead to an exit of investments from the market. We currently maintain an underweight allocation to Russia and continue to reduce our position. Despite low valuation and a rebound in equities, the outlook for the Russian economy will be weak going forward.

At some point, the euphoria in energy markets should also subside, turning tailwinds into headwinds for Russia’s oil and gas-dependent economy.

Yerlan Syzdykov, Global Head of Emerging Markets, Amundi
As the Russian market has started pricing in growing geopolitical risks, and sanctions risks in particular, we see opportunity in sectors potentially less vulnerable to international sanctions (e.g. domestic consumption). We would avoid the banking sector, which is targeted by sanctions in the EU, US and UK. There are broader opportunities in Russian equities, which will emerge once geopolitical uncertainties ease.

If things continue to worsen, the situation is likely to create a feeling of risk aversion for the broader global markets, where investors could decide to turn to safe-haven assets until we get more clarity on the overall security situation in Ukraine.

Kelvin Tay, Regional CIO, UBS Global Wealth Management
While it’s too early to make a final assessment of what Monday’s events mean for what happens next, the severe risk case – including fighting and a prolonged disruption to Russian energy exports – still poses extreme risk. .

Investors with diversified portfolios and a long-term investment plan would be well-prepared in the event of an escalation as well as an easing of tensions. Additionally, allocations to commodities and energy stocks are an attractive option to help investors hedge portfolio risk. Energy prices would rise in the event of an escalation around Ukraine, as well as if cooler heads prevail amid growing demand and constrained supply.

Kelly Chung, Senior Fund Manager, Value Partners
The escalation of tensions between Russia and Ukraine did not bode well for markets, as it heightened investor concerns about continued high inflation in the United States and a more hawkish Fed.

Although we believe that Russia will not go to war with Ukraine, we anticipate that tensions could escalate further, which could exacerbate inflationary pressures. With Russia and Ukraine major exporters of oil and other commodities, tensions could create more bottlenecks in the supply chain and drive up energy and food prices . Moreover, any response from Western economies, especially the United States, would be trade sanctions, which should also have an impact on oil and food prices.

We expect tensions between the two countries to last longer, and the market has yet to price in this geopolitical uncertainty. However, we believe that the market impact will not last too long (historically, the direct market impact of geopolitical tensions lasts three weeks to three months). Since the most important market drivers associated with stress are inflation-related, investors will eventually shift their focus back to the Fed, especially to get a clearer picture of its balance sheet normalization.

Jamie Maddock, Equity Research Analyst, Quilter Cheviot
Geopolitical events can lead to volatility in oil prices, which will be of concern to both businesses and consumers given the current inflation situation. Prices have risen sharply and although there are signs that this is beginning to expand, rising oil and gas prices will do nothing to ease the stickiness of this inflation.

It is also interesting to see Germany withhold approval of the Nord Stream 2 gas pipeline from Russia. As Germany searches for alternatives, this will take time and will further drive up prices across the continent. A significant part of Europe’s gas supply comes from Russia, so any disruption to it will have an effect on the prices paid by states, companies and the end consumer.

William Jackson, Chief Emerging Markets Economist, Capital Economics
Restrictions on foreign investors holding Russian government debt may not have a major impact in practice. Much would depend on terms and conditions and whether foreign investors would need to sell all current holdings. Even then, foreign investors hold a small share (20%) of sovereign debt in local currency, so any forced sales may not drive bond yields up significantly and the Russian government has funding needs. very low, so higher borrowing costs may have little short-term impact. In addition, sovereign bonds represent a small share of Russian banks’ assets, so it is possible that banks will intervene.

Jason Hollands, Managing Director, Bestinvest
While it’s understandable that investors are spooked by a potential conflict in Europe, it can be unwise to make rash decisions about long-term investments based on short-term news headlines.

Nathan Rothschild, one of the founders of the banking dynasty, is said to have said, “Buy with the sound of cannons, sell with the sound of trumpets”, having made his fortune during the Napoleonic war. His words are often taken as advice to recover investments that others sell in a panic.

While buying when markets are seeing strong sell-offs can make sense, trying to guess when market declines have bottomed out is nearly impossible, and so a combination of not panicking and gradually adding to portfolios in small bites after the falls is wiser than taking a cavalier approach.

Dolores W. Simon