WeeklyWatch – Markets unsettled as Ukraine crisis deepens

22 February 2022

Stock Take

Russian roulette?

Markets remained unsettled last week, as the sweeping Russian military presence along the Ukrainian border continued to dominate headlines.

Eastern and Western sources battled for narrative supremacy, adding to the ongoing disquiet. Markets rose on Wednesday, as Russia declared it had started retracting some of its soldiers from the border. Markets then dropped the following day as Western sources cast doubt over said claims and intimated that an invasion ‘storm’ was nevertheless brewing. Friday saw reports of escalating violence in Eastern Ukraine, and yesterday Russian President Vladimir Putin ordered troops into two rebel-held regions there, having recognised them as independent states.

Western allies have maintained that they wouldn’t condone military intervention in any Russian invasion of the Ukraine, yet they’ve also asserted that any such invasion would be met with heavy sanctions.

On Thursday, UK Prime Minister Boris Johnson outlined some of the sanctions Britain would implement:

“What we’re doing is targeting particular Russian banks, Russian companies, and making sure that we take steps, take even more steps, to unseal the facade of Russian property holdings.”

He went on to say that the government would plan to stop Russian companies from raising capital on London financial markets. This would likely be a similar story with other Western markets, amounting to damaging effects on the market value on Russian companies.

Lauren Yamasaki, Senior Investment Product Specialist at St. James’s Place, says:

“Despite our funds and portfolios having a relatively small exposure to Russia-based stocks and bonds, this could have a wider impact, particularly on investments in the energy sector, where Russia is a major supplier of oil and gas, and on cyclical sectors as increased energy prices will add further pressure to the current environment of rising inflation.”

The ripple effect

Western leaders also face the issue of the dependence of many EU nations on Russian oil and gas supplies. Mark Dowding, Chief Investment Officer at BlueBay Asset Management, notes that this has meant many leaders are in weak negotiating positions – Germany, in particular.

He adds:

“Beyond Russia’s borders, the question more broadly is what would be the impact to the global economy of any conflict. The price of oil and gas would surely jump, but it is debatable how high prices would stay and for how long.”

In light of the evolving, rapidly developing situation in the East, it comes as no surprise that the FTSE, S&P 500, NASDAQ and STOXX Europe 600 have all been unstable over the course of the week – and the situation is set to continue in the near term, until or unless the disaster is resolved.

When doubt strikes

Such changeable conditions can leave investors at risk of making impulsive decisions to sell out at the first sign of volatility, which could consequently have major repercussions on long-term returns. Resisting the urge to react can be difficult to ignore.

As Adrian Frost from Artemis says:

“For investors, a pattern of past geopolitical crises is that, ultimately, the underlying economic context tends to dominate. The sell-offs are relatively shallow (6% on average) and short (three weeks to trough, and then to recovery.) Though we can’t and don’t give financial advice, the saying ‘time in the market, not timing the market’ seems apt.”

Increased oil or gas prices will almost certainly impact the already growing inflation rates across the globe. Last week, the UK revealed CPI inflation had reached 5.5% – the highest level in three decades. This can partly be put down to smaller discounts in the January sales than we’ve previously seen. And of course, increasing fuel prices were likewise to blame.

With fuel costs set to rise drastically for UK consumers in the coming months, it’s likely that pricing pressures will continue to increase for some time, too.

Paul Dales, Chief UK Economist at Capital Economics, observes that inflation could possibly reach almost 8% in April:

“This will add more pressure on the Bank of England to raise interest rates rapidly. We think rates will rise from 0.50% now to 1.25% this year and to 2.00% next year.”

This puts the Bank of England in a challenging position. Indeed, raising interest rates would help to limit inflation, yet it would further challenge UK households and businesses already buckling under increased costs. There’s a more conservative forecast for interest rates from other commentators, such as AXA, which expects them to increase to 1.00% by August and to remain there into 2023.

Uncertain times highlight the need for a diverse portfolio of investments and a long-term outlook to mitigate some of these risks.

Wealth Check

Boris Johnson yesterday announced an end to all remaining Covid restrictions in the UK – instead putting forward a ‘Living with Covid’ plan. The pandemic has certainly been a steep learning curve for many of us about how our health can be unexpectedly and dramatically impacted.

Have you contemplated what might happen were you no longer able to self-manage your financial affairs, or make other important decisions about your health and welfare?

The assumption can be that your next of kin or another close relative or friend would simply be able to pick up the reins. However, that wouldn’t necessarily be the case, unless a power of attorney had already been set up.

A Lasting Power of Attorney (or Continuing Power of Attorney in Scotland and Enduring Power of Attorney in Northern Ireland) is a legal process that enables you to appoint someone else to look after your affairs for you if you’re unable to.

There are two different kinds of Powers of Attorney, which are:

  • Property and financial affairs

This allows your attorney(s) to make decisions on your behalf regarding matters such as managing your bank accounts, paying bills, paying for a care home or in-home care, managing your pension and investments, and deciding what to do with your property if you’re no longer living there.

  • Health and welfare

This allows your attorney(s) to make decisions for you about matters concerning medical care, moving into a care home, your daily routine (such as washing, dressing and eating) and life-sustaining treatment.

Many individuals find themselves in a moment of crisis, and realise that they haven’t arranged a power of attorney. Relatives are often desperate to access their money in order to pay for social care, for example, and to make other key decisions – yet they’re unable to do so.

In light of this, we strongly advise putting both kinds of power of attorney in place as soon as possible to ensure that, should the worst happen, the worry of organising someone to manage your affairs will at least be avoided.

Powers of Attorney involve referral to a service that is separate and distinct to those offered by St. James’s Place. Powers of Attorney are not regulated by the Financial Conduct Authority.

The Last Word

“The United States and NATO are not a threat to Russia. Ukraine is not threatening Russia. Neither the US nor NATO have missiles in Ukraine. We do not have plans to put them there.”

– President Biden discussing the ongoing situation in Russia.

The information contained is correct as at the date of the article.

Artemis, AXA and Capital Economics are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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