April 20, 2024

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Market downturn would be worse than Crimea if Russia invaded: Goldman Sachs

Market downturn would be worse than Crimea if Russia invaded: Goldman Sachs

Service personnel of the Ukrainian Armed Forces stand guard on combat positions near the separation line from Russian-backed rebels in the town of New York in Donetsk region, Ukraine, February 9, 2022.

Oleksandr Klimenko | Reuters

The blow to stock markets from a possible Russian invasion of Ukraine will be worse than the one we have seen after The annexation of Crimea in 2014According to Peter Oppenheimer, chief global equity strategist at Goldman Sachs.

Global stocks fell on Monday As fears of an imminent invasion mounted, a number of countries urged citizens to flee Ukraine. National Security Adviser to US President Joe Biden Jake Sullivan It warned on Sunday that any incursion could come “any day now” and Ukraine requested a meeting with Russia within 48 hours.

pan europe Stokes 600 The index fell sharply on Monday morning, and Oppenheimer said European equities will remain volatile until uncertainty over Ukraine’s geopolitical situation subsides.

US stock futures pointed to a sharply lower open on Wall Street later in the day and markets in the Asia-Pacific region closed in negative territory. Oil prices also rose to their highest level in seven years. Germany DaxWith its heavy exposure to Russian gas, it fell 3.4% on Monday, reversing its decline in 2014.

“If we look at some of the recent events – if we look at the annexation of Crimea, for example – we think it raised the risk premium around 20 basis points, which had about a 5% effect on the stock market, and that’s probably bigger,” he said. He also told CNBC’s “Street Signs Europe” on Monday.

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“So the kind of moves we’re seeing – perhaps an adjustment of the risk premium between 20-40 basis points – that by themselves could reduce the stock market by just over 5% seems reasonable.”

temporary setback

In February and March 2014, Russia invaded and annexed the Crimea(A), sparking international outrage and a wave of economic sanctions, military experts likened the unusual build-up of Russian forces on the Ukrainian border in recent weeks to what preceded the previous invasion.

“When Russia moved against Ukraine in the first half of 2014, economic sentiment in the eurozone barely fluctuated,” said Holger Schmieding, chief economist at Berenberg.

“Real GDP growth slowed from 0.4% q/q in Q1 2014 to 0.2% in Q2 before rebounding to 0.5% q/q in Q3. Of course, a temporary reversal may be more pronounced this time around.”

Schmieding noted that although Russia is a serious military power with huge economic potential, it is not yet a major market for Europe, with Germany selling only 1.9% of its merchandise exports to Russia versus 5.6% to Poland.

“For all the other factors that will shape the Eurozone’s economic performance this year (Omicron’s decline, supply chain problems slowly receding, the Federal Reserve raising interest rates), it is likely that some losses in non-energy trade with Russia as a result of sanctions and counter-sanctions will have an impact. Almost little on the growth outlook for Europe beyond the next month or two.”

Therefore, Berenberg expects European markets to rebound shortly after the temporary setback that a potential attack would cause.

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Twin problems

Global markets have been volatile since the beginning of the year, and took another bearish turn towards the end of last week after a sweltering US inflation reading fueled speculation that the Federal Reserve may have to raise interest rates more aggressively than expected in the future. months.

An index of investor sentiment published by online British stockbroker Hargreaves Lansdown on Monday showed a sharp drop in investor confidence between January and February.

Senior Investment and Markets Analyst Susanna Streeter said the “double problems” of looming conflict and rising prices were likely behind the sluggish sentiment.

“As consumers prepare for more financial pain as household bills rise and retailers are forced to pass higher costs for goods, transportation, and labor through the prices of goods and services, investors are feeling double dread at the prospect of war,” said Streeter.

“A new rise in European gas prices is also expected in the event of conflict leading to increased cost-of-living pressure and this may dampen consumer confidence.”