In general, every asset class has been affected by Russia’s invasion of Ukraine. For example, the stock market is in freefall.
As devastating as the consequences of the largest military conflict in Europe since World War II might be, it is wise for retail investors to keep calm and carry on.
BUY
U.S. dollar
The greenback is heavily bet on, as the euro dropped to a fresh 22-month low against the dollar and hit multi-year lows against the yen, Swiss franc, and pound.
As tensions between Russia and Ukraine rise, the US Dollar Index rose to a new yearly high, while rising US data prints could keep the greenback afloat, as the Non-Farm Payrolls (NFP) report is expected to show a further improvement in the labour market.
Further declines in risk appetite may keep the US Dollar Index (DXY) afloat over the coming days, adding pressure to the Federal Open Market Committee to make adjustments to its exit strategy.
Read: Holding or trading stocks, which is better?
Oil
- Russia’s systemic role in the global energy market has definitely been disrupted under the conflict, which is bullish for crude oil and natural gas prices in Europe.
- US crude oil prices increased by more than 7% in Sunday’s trade, as the market continues to react to supply disruptions linked to the Russian invasion of Ukraine and the threat of an oil and natural gas ban on Russia.
- In the longer term, energy experts believe a conflict would raise the price of oil and natural gas, which would ultimately affect the price of all commodities.
Gold
- The Russian invasion of Ukraine, we believe, would bring gold and gold stocks the most benefit as safe-haven assets.
- The price of gold rose above $2k an ounce this week as Russia’s invasion of Ukraine intensified. Commodity prices also rose as a result of new sanctions against Russia.
- Experts say you are likely to achieve maximum leverage in gold price gains if Russian-Ukrainian tensions escalate, thus accelerating the process of becoming fully invested in gold mining stocks.
Read: Stocks to watch out for in February on the NGX
Natural gas
- Gas is the “transition” fuel until renewable energy becomes feasible at the end of this decade when more gas will be needed than originally anticipated.
- It is unclear how Europe will fare another winter without average Russian oil supplies, and whether they are willing to do so
- In the energy markets, prices spiked 25% on Friday to hit a record high before slipping backward. In the coming days, traders are likely to panic about how the war is progressing, sending prices over 500p per therm, a nine-fold rise from just over a year ago.
- Several analysts believe the possibility that Russia will restrict natural gas supplies to combat further rounds of sanctions and drive prices higher even further cannot be easily dismissed, as the government of Vladimir Putin is outright undermining any rational interpretation of its tactics in this increasingly bitter, destructive war.
Read: Top U.S stocks making investors very rich
HOLD
Global stock markets
- The global economy may suffer long-term consequences due to the Russian invasion of Ukraine, according to equity markets.
- At the end of the week, European stocks slumped to their lowest levels in a year as sweeping sanctions against Russia disrupted trade with one of the world’s largest suppliers of commodities.
- Though with more limited exposure to Russia, U.S. stocks declined as well, but by a much smaller margin.
- It was the worst week for Europe’s Stoxx 600 Index since the early days of the pandemic in 2020. In its fourth loss in five days, the S&P 500 fell 0.8%.
- Despite this, defence stocks rose as Germany reversed decades of military austerity in response to Russia’s aggression.
- This year, only the mining and energy sectors have gained in the Stoxx 600, suggesting a continuation of the commodities rally.
- Accordingly, investors continue to place their stakes in highly-quality companies that payout sustainable dividends.
- Markets are generally challenged by inflation in that it compresses margins, lowers multiples, and increases the risk of more aggressive central bank policy. On a relative basis, however, sectors with pricing power tend to do well.
Crypto market
- In light of its volatility and increased correlation to stock markets, Bitcoin is losing its appeal as a “safe” asset like gold.
- There would need to be a return of investor risk appetite across asset classes in order to sustain a rally past $45K. At the moment, it appears these events in Ukraine may be key to this prospect.
- Experts say the crypto market is reacting in sync with stock markets to the news of Russia’s invasion of Ukraine, despite crypto’s reputation as an asset uncorrelated with traditional financial markets.
- As with stocks, they rise and fall. Watching stocks drop overnight and throughout the day today is pretty much the same as watching cryptos do the same.
SELL
Russia and Ukraine Debt market
- As a result of the risk of sanctions, Russian bonds will remain unattractive, regardless of whether they are denominated in local currency or US dollars.
- Bond prices may fall sharply in Ukraine barring a full invasion that would take investors away from the market.
- Investors are likely to reduce or close their Ukraine exposure, even if Ukraine receives a U.S. commitment for billions of dollars in financial support and may gain accommodative terms from the IMF.
Russia’s equity market
- In an effort to stave off the impact of global sanctions on domestic investors, the Russian stock market was closed at the time of writing, marking a record in the nation’s history
- It has been announced that trading across all Moscow Exchange markets will be suspended on March 5, 7, and 8. Russian stocks listed in London lost more than 90% of their value since the Moscow Exchange’s equity trading closed over a week ago.
- Due to the next round of sanctions, dealing with Russia’s financial institutions and strategic industries is also difficult. This is because state-owned firms (especially banks) and sovereign entities are difficult to deal with.
Bottom line
- The market is likely to remain choppy at least over the next few months due to the attack on Ukraine, which has thrown up all kinds of possibilities that were unforeseeable until just a few weeks ago.
- Sadly, retail investors must cope with this market backdrop at this time. Nevertheless, despite the dramatic price movements across asset classes, this shouldn’t change the basic calculus or long-term plans of most retail investors.
- Although these dislocation events may create some additional volatility in the near term, they have historically presented opportunities, provided that a recession does not follow.
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