Long Term View on Inv. Market Impact from Ukraine Russia
Published / Last Updated on 12/03/2022
This week ending 11/03/22, the FTSE 250, the German DAX, the Japanese Nikkei, Hong Kong Hang Seng, and the Chinese Shanghai Composite all hit year lows. Clearly, investors around the globe including you and we have lost money. That said, we are still in positive territory since the start on the pandemic in March 2020, so all is not a disaster.
Since the build up of troops and then subsequent invasion of Ukraine by Russia, markets globally have fallen between 8-18%, In fact 8.71% on average across all the indices that we track. Europe, Hong Kong, and Japan have suffered more. In the Far East it is a combination of rising covid numbers, Hong Kong’s political and property issues but also Ukraine tension with Japan relying on nearly 10% of its gas needs from Russia.
These falls are short term in our opinion and in the longer term we believe markets have much to be positive about and will recover so all our outlooks should be more positive.
Geo-Political Risk – Big Changes
With usually neutral countries like Finland, Germany, Sweden, and Switzerland now coming down on the side of Ukraine and supplying arms, Russia has galvanised solidarity in Europe rather than polarised it. With the US, UK, and Europe all ‘beefing up’ their miliary capabilities, Russia will face even larger numbers, better equipped and more prepared forces on its borders. There is no threat of incursion into or war with Russia, but the West is ending an unequivocal message of solidarity. Even President Biden said on Russia using chemical weapons that it “I’m not going to speak about the intelligence, but Russia would pay a severe price if it uses chemical weapons” and then he walked away, sternly with no further comment. This was a change in rhetoric from the US and a much firmer, tighter lipped line. Combining any speculated miliary intervention with sanctions already crippling Russia will eventually destroy their economy if they do not come to the table, leads us to believe that we are heading to a new ‘Iron Curtain’ coming down. We have already experienced a world with an Iron Curtain for 42 years between 12 March 1947 and 3 December 1989. Geo-politically, the rest of the World will strengthen together, and Russia will be isolated and weakened politically.
Economic Risk – Little Changes
European reliance on Russian oil and gas with plans for replacement are already in motion to cut this reliance totally. Canada, the UAE, and Saudi Arabia have agreed to produce more oil and even Venezuela may be ‘brought back in from the cold’. Green energy development will also speed up so that Europe never relies on Russia again. This will severely damage the Russian economy long term. The world’s two ‘super-power’ economies of China and the USA already have little or no reliance on Russia. Therefore, globally economies will recover from the initial shocks and fears of World War. Russia may collapse economically with sanctions and the freeze on Russian assets around the World. We are returning to an Iron Curtain and economic war.
Investments
Those will the closest links to Russia i.e., Europe and to some extent the UK and Japan equities are and will suffer more than most in the short term but in long term they will recover. For the bond (government and commercial debt) market and commodities, we see these areas as ‘business as usual’ i.e., moving up and down with inflation, interest rates and economic growth or falls. We do see a huge opportunity for investing im emerging markets in Asia and South America and in particular, Brazil and India ‘taking the slack’ to replace the hole left by Russia.
