WeeklyWatch – Ongoing market fluctuations amid Ukraine crisis

08 March 2022

Stock Take

Fuel to the fire

The Russian invasion of Ukraine continued to monopolise headlines last week, as military actions were stepped up, and the ensuing humanitarian crisis deteriorated.

Meanwhile, against a backdrop of erratic market activity, investors gauged the likely impact of the crisis on global supply chains. By Monday, the price of a barrel of oil had jumped to above $130 – exacerbating the strain surrounding the cost of living. Russian supplies of both oil and gas are critical across extensive parts of Europe. Wider market sentiment has been affected due to fears of major supply disruption and worries related to a potential Western embargo on Russian oil and gas exports, and the rising cost of gas in the UK and Europe is a major cause for concern.

Furthermore, Russia and Ukraine are key to the global supply of commodities such as copper, wheat, nickel and neon, and the rising prices will only lead to increased inflationary pressures. Soaring interest rates caused by the pandemic were already an issue for central banks, and so the events in Ukraine will have undoubtedly further complicated matters.

Risk aversion

Equity market retreats across Europe were sweeping as investors weighed up the ramifications of the Ukrainian crisis. The German DAX and French CAC40 dropped by -10.1% and -10.2% respectively. Mark Holman, Partner at TwentyFour Asset Management, observed that European banks were among the most severely impacted, as fears of losses provoked many to reduce their holdings.

However, he noted:

“While this natural risk aversion is logical in the current market, we do not think it is fundamentally well supported, and should eventually present investors with an opportunity. We are confident that Russian and Russia-related exposures are not about to overwhelm the European banking system.

“Russian and Russia-related exposures at European banks are extremely low – they are estimated to be less than 1% of total exposures across the sector.”

Economic picture

While UK markets were not quite so hard hit by events in Ukraine, the FTSE 100 still slumped, however, by 6.7% over the course of the week. Performance was not even, in that defence – stocks performed better than banks and retail-type companies. Broadly speaking, investors appear to have responded to the ongoing situation by shifting further into less risky assets.

Whereas market volatility peaked after more than a year, US equities felt less of an impact. The S&P500 fell by -1.3%, with dips in the technology and financial sectors offset by strength in other segments.

Schroders commented:

“Beyond these events [in Ukraine], the US economic picture remained broadly unchanged. US growth continues to look robust while inflation is elevated. Most areas of the market struggled in February. Energy was the only sector to make gains, with oil and gas prices increasing steeply. All other sectors declined. The tech and communication services sectors were among the weakest.”

The US also presented its latest payroll data at the end of last week, showing a continued fall in unemployment.

Critical timings

Looking to the future, it would appear that the geopolitical outlook is changeable and ambivalent. Mark Dowding, Chief Investment Officer at Bluebay, commented:

“There is a sense that we may trade from headline to headline. Yet, much as we might dearly want to see the plucky heroes in Ukraine prevail, or Russians rise up and depose Putin, there may be a sense that a grinding campaign of devastation appears the most likely outcome for now, given the overwhelming military superiority in Russia’s favour, much of which it has yet to deploy.”

Joe Wiggins, Director of Liquid Markets at St. James’s Place, notes that as we can’t foretell the future, or how markets will react to large macro events reliably, investors should keep in mind the old adage of ‘time in the market, not timing the market’.

“It is not that macro events are never significant for markets. There will be incidents in the future that will lead to savage losses in equities; we just won’t be able to predict what will cause them or when they will happen. Trying to anticipate when they will occur, rather than accepting them as an expected feature of long-term investing, will inevitably lead to worse outcomes.”

Wealth Check

When you picture how your future will play out, what do you see? Will you be living in Berkshire or the Bahamas, or a narrowboat on the Norfolk Broads? While it’s good to have set ideas, seeing the path to achieve them can be a whole other matter.

Personal goals can be linked to life milestones, such as stopping work before you’re 60 or starting a family. Others might be based on personal ambitions – for instance, learning to fly or starting a business later in life. You might want to give your children the very best education or leave them a good legacy.

In fact, the goals you set yourself should be based on who you are and what you believe in – in other words, your personal values.

Are you passionate about protecting the planet and responsible investment? If so, you could invest your money to create a better world for not only yourself but society, too.

No two people will ever have the same goals, which is why your financial plan should be highly tailored to you, and discussing those personal goals with a financial adviser is just the first step.

Harriet Shepherd, Marketing Proposition Manager at St. James’s Place, says:

“The first conversation is when you begin to discover what makes people tick, what’s important to them, what’s not.

“Then you step back and look at their present financial landscape – cash, savings, ISAs, employer pensions. Setting personal goals is all about managing the money they already have to achieve the future they want.”

Naturally, plans are always subject to change, and while we can anticipate the future, we can’t predict it. A break-up, an unexpected job loss or medical bill may completely throw you. Personal goals may change as time goes on, and having a plan ready can protect you through the difficult times. After all, it’s much easier to tweak an existing financial plan as opposed to starting one from scratch.

“That calm, sensible, long-term view that advisers give clients is incredibly valuable. The longer you know your adviser, the more you trust them,” says David Corris, Head of the Public Policy Division at SJP.

This is the core of what is meant by financial well-being – have a plan based on your beliefs, and an expert on your side who will always be there to support you.

This means you can assertively look to the future – and embrace it.

The value of an investment with St. James’s Place will be linked directly to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The Last Word

“He thought he could roll into Ukraine and the world would roll over. Instead, he met a wall of strength he never imagined. He met the Ukrainian people. From President Zelenskiy to every Ukrainian, their fearlessness, their courage, their determination, inspires the world.”

– US President Joe Biden on Russia’s invasion of Ukraine, in his State of the Union Address last week.

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

Schroders, TwentyFour Asset Management and BlueBay Asset Management 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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