As the conflict in Ukraine deepens and the fallout from increasingly tough sanctions on Russia reverberate through global markets, investors are rushing to keep up.<\/p>\n
Safe havens like bonds, gold and the US dollar rallied on Monday, while classic risk-sentiment proxies like the Australian dollar tumbled. Emerging market currencies also came under pressure, with the South African rand and the Turkish lira sinking. U.S. and European equity futures tanked. Crude oil surged.<\/p>\n
Investors face soaring global commodity prices on top of already elevated inflation and slowing global growth after the pandemic recovery. They\u2019re also trying to get a handle on how central banks may recalibrate monetary policy to meet the challenges.<\/p>\n
Here is what a selection of strategists and investors have to say on the unfolding situation across asset classes.<\/p>\n
Hedge Turmoil With Energy<\/strong><\/p>\n \u201cThe biggest risk of this crisis will be energy disruption\u201d as well as effects on food and other global commodities, Ben Emons, global macro strategist with Medley Global Advisors, said on Bloomberg Television. \u201cYou want to position particularly in that direction, companies that are focused on the different commodities, including energy,\u201d he said.<\/p>\n Other companies may announce divestments in the wake of BP Plc\u2019s plan to dump its shares in Russia\u2019s largest oil company Rosneft PJSC, he added. US energy firms will likely do much better initially then European ones, Emons said. Russia\u2019s central bank may become \u201cimpotent\u201d in defending the ruble if sanctions are successful, according to National Australia Bank Ltd. strategists.<\/p>\n \u201cWhile not entirely clear as yet exactly what it means in practice, Russia\u2019s central bank (CBR) has been sanctioned with the intention of denying it unfettered access to its ($643bn worth) of FX reserves,\u201d Ray Attrill, head of FX strategy, markets, wrote in a note. \u201cIf CBR can\u2019t access reserves, it can\u2019t defend the RUB from free-fall.\u201d<\/p>\n Hard Monetary Decisions<\/strong><\/p>\n \u201cFrom a monetary policy perspective, this conflict implies a further deterioration of the already tricky growth-inflation trade-offs central banks have been facing, making the upcoming decisions particularly hard,\u201d Silvia Dall\u2019Angelo, senior economist at Federated Hermes, said in a note.<\/p>\n \u201cIn the current environment of already high inflation and concerns about second-round effects, central banks will likely continue to remove monetary stimulus,\u201d she said. \u201cBut downside growth risks from the geopolitical backdrop mean that they are likely to proceed gradually and cautiously. It is fair to say that the crisis increases the room for central banks\u2019 policy mistakes.\u201d<\/p>\n European Banks Under Pressure<\/strong><\/p>\n \u201cEuropean banks may be under some pressure on Monday given some Russian exposure and concerns around what that will mean if payments are restricted,\u201d TD Securities strategists including Rich Kelly wrote in a note.<\/p>\n \u201cAustrian banks are most exposed, with Russian counterparties representing 1.6% of banking assets, followed by 0.6% for Italy and 0.2% for France,\u201d they wrote. \u201cExpect the ECB to provide ample liquidity and national authorities to provide what support and forbearance is allowed to manage those exposures.\u201d<\/p>\n Hard to Be Short<\/strong><\/p>\n \u201cWhile we aren\u2019t making a long call, it is harder to be short the market longer-term (again, we are assuming a non-catastrophic aftermath),\u201d 22V Research strategists led by Dennis DeBusschere said in a note. \u201cSentiment for buybacks and dividends remain at very high levels, supporting future cash return. Additionally, dividend and buybacks, as a percentage of operating cash flow, are not elevated.\u201d<\/p>\n \u201cBottom line, being short the market on earnings slowing and financial conditions tightening is harder now. Being short because you have a strong view on oil prices going to $150 as Russia escalates further, falls apart, and drags Europe into a deep recession is a different story.\u201d<\/p>\n Looking Past Daily Swings<\/strong><\/p>\n \u201cAsian markets will likely show big daily swings but looking at the long-term trends, it\u2019s not too unreasonable to start buying,\u201d said Jung Sang-Jin, chief equity manager at Korea Investment Management Co. \u201cThere\u2019s no need to react sensitively to every single short-term development.\u201d<\/p>\n Jung said the biggest worry is whether inflationary pressure persists through the second half of the year, but if it doesn\u2019t, \u201cwe can ignore other short-term factors.\u201d \u201cRisk aversion related to conflict may already have peaked,\u201d JPMorgan Chase & Co. strategists led by Mixo Das said in a note. \u201cMarkets tend to overprice known unknowns and this leads to the typical pattern of \u2018buy the fact.\u2019 While the scale of the invasion was worse than feared, the lack of a swift win for Russia likely lowers the likelihood of the conflict spreading.\u201d<\/p>\n Das added that investors need to remember that Russia and Ukraine account for less than 2% of global GDP and the exposure of global banks to Russia is less than $100 billion.<\/p>\n
\n\u2018Impotent\u2019 Central Bank<\/p>\n
\nPeak Contagion?<\/p>\n
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