Here’s what investors are saying as the crisis in Ukraine intensifies

(Bloomberg) — As the conflict in Ukraine intensifies and the fallout from tougher sanctions on Russia reverberates across global markets, investors are scrambling to keep pace.

Most Read From Bloomberg

Safe havens such as bonds, gold and the US dollar rose on Monday, while classic risk sentiment such as the Australian dollar eased. Emerging market currencies were also pressured, with the South African rand and Turkish lira falling. US and European stock futures fell. Crude oil prices rose.

Investors are facing a sharp rise in global commodity prices in addition to already high inflation and slowing global growth after recovering from the pandemic. They are also trying to get a sense of how central banks can reset monetary policy to meet the challenges.

This is what a group of strategists and investors have to say about the evolving situation across asset classes.

No time to buy snorkeling

Saxo Capital Markets maintains a defensive stance on stocks and sees a continuing rally in energy, mining and commodities stocks.

“It may not be time to buy the dip, but be selective with regard to stocks and markets that could benefit from worsening geopolitical tensions and a commodity rebound,” Jessica Amir, a market analyst in Sydney, wrote in a note.

Amir expects US stocks to fall further given “there is a lot of uncertainty in the air”, and “inflation is at its highest levels in several decades and is set to get worse.”

hit to grow

Rajiv de Mello, global macro portfolio manager, said Gama Asset Management raised some of its hedges by selling the euro after increasing Western sanctions against Russia.

Higher energy prices will affect European growth, and confidence will be shaken. The European Central Bank will be slower to normalize its monetary policy than other central banks.”

The story continues

The “incompetent” central bank

Russia’s central bank could become “helpless” to defend the ruble if sanctions work, according to National Australia Bank strategists.

Ray Atrell, Head of FX Strategy, said: “While it is unclear exactly what it means in practice, the CBR has been sanctioned with the intent of denying it unrestricted access to[$643 billion worth]of FX reserves. “. , Markets, wrote in a note. “If the CBR does not have access to the reserves, it cannot defend the Russian ruble from free fall.”

Tough monetary decisions

“From a monetary policy perspective, this conflict signals a further deterioration of the already difficult trade-offs between growth and inflation that central banks face, making the decisions ahead especially difficult,” said Silvia Dal Angelo, chief economist at Federated Hermes. Note.

“In the current environment of already high inflation and concerns about the effects of the second round, it is likely that central banks will continue to remove monetary stimulus,” she said. But downside risks from the geopolitical background mean it is likely to continue gradually and cautiously. It is fair to say that the crisis is increasing the scope for central bank policy errors.”

European banks under pressure

“European banks may come under some pressure on Monday due to some Russian exposure and concerns about what it would mean if payments are restricted,” TD Securities strategists including Rich Kelly wrote in a note.

“Austrian banks are the most exposed, with Russian parties accounting for 1.6% of banking assets, followed by Italy 0.6% and France 0.2%,” they wrote. “Expect the European Central Bank to provide ample liquidity and national authorities to provide adequate support and tolerance to manage these exposures.”

It’s hard to be short

“Although we’re not making a long call, it’s tough to be short in the market over the long term (again, we’re assuming non-disastrous consequences),” 22V Research Strategists led by Denis Debuchere said in a note. Repurchase and dividend sentiment remain at very high levels, which supports future cash yield. In addition, dividends and buybacks, as a percentage of operating cash flow, are not high.”

“Bottom line, being crippled by sluggish earnings and tightening financial conditions is much more difficult now. Being short because you have a strong view of oil prices going to $150 as Russia escalates further, collapses, and drags Europe into a deep recession, is a different story.”

Looking at the past daily fluctuations

“Asian markets are likely to show significant daily volatility but given the longer-term trends, it is not unreasonable to start buying,” said Jung Sang Jin, senior equity manager at Korea Investment Management. Every development is short term. “

The biggest concern, Jung said, is whether inflationary pressures will continue through the second half of the year, but if they do not, “we can ignore other short-term factors.”

peak infection?

“Risk-aversion associated with the conflict may already have peaked,” said strategists at JPMorgan Chase & Co., led by Mixo Das, in a note. “Markets tend to overprice known unknowns, and this leads to the usual pattern of ‘truth buying.’ While the scale of the invasion was worse than feared, the lack of a quick win for Russia would likely reduce the potential for conflict to spread.”

Das added that investors need to remember that Russia and Ukraine account for less than 2% of global GDP and that the exposure of global banks to Russia is less than $100 billion.

Hedge with energy

“The biggest risk of this crisis will be the energy disruption” as well as the impacts on food and other global commodities, Ben Emmons, global macroeconomic analyst at Medley Global Advisors, said on Bloomberg TV. “You want to position yourself in that direction, companies that focus on different commodities, including energy,” he said.

He added that other companies may announce the sale of investments in the wake of BP’s plan to give up its shares in Russia’s largest oil company, Rosneft PJSC. Emmons said US energy companies are likely to initially do much better than European companies.

(Updates with additional comments from Saxo, GAMA Asset)

Most Read From Bloomberg Businessweek

© Bloomberg LP 2022