Investors’ Outlook: Dark days for Ukraine

Russian President Vladimir Putin’s use of force against Ukraine has caused a great humanitarian tragedy and will have far-reaching consequences. Europe and the western world will need to look hard at the security of their borders and rethink their reliance on an energy supplier that is also an aggressive superpower.

Even before the shocking news of the invasion spread at the end of February, it was clear that the first quarter of 2022 would be one of the rockiest we’ve seen since the pandemic hit the markets in early 2020. The risks that had us on edge around the turn of the year – inflation and expectations of faster-than-expected monetary policy tightening in the US – continue to loom large. Russia’s attack on its southern neighbor is adding a troubling new item to the list of worries, increasing investor uncertainty and moving energy prices sharply higher.

The extraordinary actions of Vladimir Putin, tragic for both sides engaged in war, have prompted extraordinary reactions. Never before have western nations forcibly removed a country from the international payment system SWIFT, a crucial facilitator of financial transactions between banks worldwide, or frozen a central bank’s reserves. The effect of sanctions on Russian assets has been dramatic and could throw the country into a long and deep economic crisis.

Markets may wobble, but we still expect the global economy to grow in 2022 at a rate that is above the levels we saw in the ten years preceding Covid-19. Healthy corporate earnings, relatively high savings levels, low leverage, and robust consumer confidence should be the main drivers. With no recession on the cards in the near term, we believe this is not the time to go “risk off”. Market participants should remain patient and invested, in our opinion.

Meanwhile, my thoughts are with the people who are directly affected by this humanitarian crisis. We should all do what is within our capabilities to help ease the suffering.