Nest Egg: Collateral damage in the markets

There’s not much point in writing anything too specific on the Russian/Ukraine situation for two reasons – a) it will be old news within 24 hours and b) it’s not my area of expertise and I’d be well advised to stick to my knitting.

It’s absolutely outrageous what is happening to the innocent people of Ukraine right now and every decent citizen on the planet must feel a sense of sympathy and support for them.

The reaction from most of the globe in response to this illegal invasion has been phenomenal so far but it still may not be enough to prevent thousands of civilian lives in Ukraine.

Most learned commentators think Putin has become so paranoid that ‘The West’ is out to get him that his actions and motives have become more irrational than ever.

For those that gave him the credit of being a masterful chess player who is playing the long game (I was one of those by the way), I think his miscalculation of the World’s response to his latest acts could be his eventual undoing. And I hope it is sooner rather than later from within his own ranks in the Kremlin.

Nevertheless, back to what I know more about – investing in times of chaos and the concept of risk.

A few folks I’ve spoken with over the last fortnight have asked my opinion of the effects of this volatility as currencies, commodities, equities, bonds and all major assets classes have witnessed some very sharp moves (both up and down).

The Russian rouble and their stock market lost more than 50% as some of the heaviest economic sanctions ever exposed hit Russia and its overseas assets.

Putin would have expected his oligarch buddies and his own wealth to have been targeted to a certain degree as Europe does not have a united army to hit him back with physical force. His early February trip to meet the Chinese leader, Xi Jinping surely must have involved discussion on opening the Chinese investment & banking systems to accepting oligarch and Russian wealth transferred out of other Western and Russian banks. But all of this only increases volatility in the markets which makes every investor nervous. There’s no argument there.

Due to increased uncertainty on the impacts of the war, as many things increase in value as decrease. Energy and most commodities shot up in value as we probably all saw a list on social media platforms of exactly what Ukraine produces which is astounding in its range. The range of commodities spans from natural gas, salt, oil, titanium, nickel, timber, mercury, iron ore, coal etc. and Ukraine also has some of the most fertile farmland in the world so the knock-on effects from an inflation perspective will be massive.

I read a statistic that Russia & Ukraine export a combined 31% of the world’s barley so the price of a pint of beer will be going up if this doesn’t pass quickly as well as many food items on supermarket shelves. Inflation was already rampant in the global economy so the price of the weekly shop will now go even higher I’m afraid.

Some of the winners in the investment world are defence stocks, cybersecurity stocks and anything energy related. Some of the clear losers until this passes includes airlines, travel stocks, German car manufacturers and luxury goods companies (no Russian money to spend on yachts, cars & watches for a while). Ironically, in the investment world often the best time to invest in assets is when others can’t sell them quickly enough and the price is collapsing. However, it would be madness to invest in anything Russian right now as these sanctions will send them back to the Dark Ages economically if sustained.

On the other hand, once a ceasefire or other contained outcome arrives then the price of many stocks which are being sold right now will rebound back very quickly indeed so, March 2022 could be a great month to invest. It was in March 2009, when equity markets eventually bottomed out and began to recover from the great financial crisis.

Contact Conor and the Tara Financial team at info@tarafinancial.ie