Impact of the Russia War on Global Financial Markets
Russia invaded Ukraine on February 24. As the world watches the devastating implications of#russiaukrainecrisis unfold, the ramifications have also been felt across the global markets.
Since we’ve been receiving a lot of requests and questions, we'd like to review the impact it has had on the global markets. This is expected to propel the global economy in a stagflationary direction- high inflation and sluggish economic growth.
Here are some of the key points on the macro views and investment strategies that you must note:
1️⃣ The investment direction from asset managers like BlackRock is to upgrade investing in developed market stocks while downgrading credit. Their rationale is that escalating tensions between the West and Russia will likely curb interest rate hikes from global central banks
2️⃣ The key focus from a global perspective will be on the impact of higher commodity prices and the impact on inflation
3️⃣ The sectors that suffered an immediate impact include energy, logistics, transport, and equities among other asset classes.
4️⃣ Commodity prices shot up as a direct impact in the backdrop of sanctions and supply-related disruptions, including suspended certification of the Nord Stream 2 pipeline connecting Russia and Germany
5️⃣ Oil & Gas- Europe is heavily reliant on Russia for its natural gas imports. Russia accounts for 17% of global natural gas production and 12% of oil production. Although no energy-related sanctions have been imposed at the time of writing this article, looking beyond the impact of geopolitical risk on risk premiums, the main economic transmission mechanism is via energy prices. Oil prices witnessed a spike owing to multiple factors including a strong economic recovery, reduced supply, and geopolitics
6️⃣ The impact on metals and other commodities is also connected with how Russia is a major exporter of agricultural commodities (48% of global fertilizer exports), industrial, and precious metals
7️⃣ Gold has historically had a relatively close correlation with geopolitical risks. Spot gold approached an all-time high of US$2,000 per ounce on haven bids as Russian troops entered Ukraine last week. Higher volatility and geopolitical risks can trigger more demand for safe-haven assets and benefit gold according to some strategists
8️⃣ After diving last week, Bitcoin jumped sharply by 13% on Tuesday as the U.S. slapped more sanctions on Russia, triggering another debate whether cryptocurrency can be considered a safe haven asset that could be used to evade sanctions
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