CIRCA5000 | A crisis in Ukraine

A crisis in Ukraine

By CIRCA5000 TeamBack to Mission Control

Investment updates • 4 min read 

What does Russia’s invasion of Ukraine mean for markets and your portfolio?

The world woke up on Thursday to the distressing news of Russian missile attacks on Ukraine. While the true cost of these tragic events is a deeply human one, we feel it is sensible to also consider the potential financial consequences on the world’s markets and your portfolios.

What does it mean for markets?

Global stock markets opened on Thursday morning 2-3% lower than where they closed on Wednesday as investors weighed up the implications of sanctions. This move is actually relatively small given the circumstances, largely because markets had anticipated the invasion and had reflected the possibility of it in prices already.

Predicting how the situation will unfold and what the end state looks like is near impossible but there are some outcomes that we believe are highly likely.

  • Increased volatility: With more uncertainty there will inevitably be some bigger moves in stock prices over the short term. This will continue until there is greater visibility on the outcome and investors become less reactive to daily news updates.
  • Sustained high prices: The impact of sanctions will certainly not reduce inflationary pressures. Oil prices have already reacted, jumping ~7% to over $100 per barrel for the first time since 2014. Russia is also a large global exporter of wheat. The price per bushel of wheat jumped 5% on Thursday and is up ~15% in the last month, contributing to increases in other agricultural commodity prices. If these prices remain at elevated levels, which they probably will, the effects will eventually be passed on to consumers.

What does it mean for your portfolio?

Our portfolios have reacted with drops similar to those of wider markets in recent days and will likely continue to be volatile as the situation in Ukraine develops. Trying to predict the exact outcome is even harder and more speculative than trying to predict how the political situation unfolds. For long term investors we see three particular reasons to stand firm about our portfolio returns:

  • Clean energy: Until now Europe’s dependence on Russia for oil and gas has been acknowledged but not acted on to any great extent. This dependence looked likely to increase with the planned construction of Nord Stream 2, a gas pipeline from Russia to Germany, but the German government has halted the project as part of their sanctions against Russia. Instead Europe, and especially Germany, will likely reconsider the role that clean energy plays in their energy strategy and look to boost spending on projects that are unconnected to Russia. This should be positive for our clean energy investments.
  • Agriculture: When food prices are high, farmers can generate higher profits which in turn fuels spending on agricultural equipment and technology. Higher wheat prices due to supply chain disruptions and sanctions may support these tailwinds for European and US farmers. In turn the companies in our Sustainable Future of Food theme may benefit from higher revenues.
  • Cyber Security: Increased conflict with Russia will likely lead to increased spending on cyber security. Whether or not cyber attacks increase because of the conflict is uncertain but the fear alone could be enough to drive corporate and government spending on increased cyber security and, therefore, support the revenues of companies in our Cyber Security theme.

However the situation unfolds, we must accept that markets and the value of portfolios may bounce around a bit in the coming weeks. Whether they continue downward or start their recovery is uncertain but for long term investors, the best time to buy is often the most uncomfortable one. 

Whilst the financial consequences of the situation are more visible to us in the UK, it is important to remember the tragic human consequences. Our thoughts are with our Ukrainian friends and colleagues and their families at home.

Capital at risk.

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