Global repercussions on financial markets from Ukraine invasion

MAJOR global concerns in the wake of the Russian invasion of Ukraine are having marked effects on financial markets, says Robin Hall, Managing Director of Newport-based financial planners Kymin.

“During February, the growing geopolitical risk in Ukraine reached a peak, with Russia launching a full-scale invasion of its neighbour. Many markets had already begun pricing in growing Russian aggression, however, further falls in equities have been seen.

“The market implications of the situation are difficult to anticipate in the short term, and much will depend on the level of escalation and counter measures imposed by Western nations. Nevertheless, it is likely that the higher oil prices that are already being seen, as well as flight to safety will persist for as long as the situation is severe.

“Higher energy prices in particular are likely to have the most significant impact, pushing inflation higher and weakening the spending power of consumers. Nevertheless, given the size of the Ukrainian and Russian economies, equity and bond markets, the direct impact is unlikely to be significant, and market moves will be more down to contagion or secondary effects.

“Separately, since the start of the year, equity and bond markets have already been under pressure from high inflation and resultingly, rising interest rates. Concerns that Central Banks were behind the curve led fixed income markets to rapidly reprice bonds, driving yields higher. Higher bond yields mean investors are less willing to buy equities at elevated valuations.

“While we should not expect that both of these issues will disappear, they have likely reached their most severe point of market concern. The beginning of an invasion that has been feared for many weeks will be the time that most market participants that are likely to capitulate will do so. Likewise, with headline inflation figures expected to level off and begin to decline over the coming months, this should diminish as a concern.

“While the market selloff has been sharp, company valuations are now suppressed. While we expect that short term volatility will remain, as long-term investors we are keen to look through such periods.

“The vast majority of the investments within portfolios fundamentally have no direct or indirect exposure to the Russian invasion of Ukraine. Price moves driven by panic of the unknown is usual in such situations, and historically has been short lived. Investors have generally been rewarded for having resolve in such situations.”