The financial impact of the Russia/Ukraine conflict
24th February 2022 14:36
interactive investor's team of investing experts comment on the financial dimensions of this unfolding humanitarian crisis.
Richard Hunter, Head of Markets, interactive investor, says: “The escalation of tensions arising from the Russian action today has pulled the rug from markets, adding to an already brittle environment in the face of rising inflation and interest rate concerns.
“The negative baton is being passed from market to market globally. The oil price, which has now risen by 35% in the year to date, has prompted inevitable interest in the majors, although BP’s (LSE:BP.) exposure to Russia via Rosneft has been of some concern. BP nonetheless remains ahead by 13% in 2022, and Shell by 24%.
- Ukraine invasion triggers FTSE 100 slump and some big stock moves
- Sea of red across global stock markets as Russia invades Ukraine
- Market winners from Russian aggression
- Could the S&P 500 really fall 20%?
“Victoria Scholar, Head of Investment, interactive investor, adds: “Unsurprisingly, Russian assets, as well as Russian-exposed assets, have taken the hardest hit as the perilous prospect of war, sanctions, and other penalties look set to cripple Russia’s already fragile economy.
“International investor confidence in Russia has been shattered by Putin’s aggression, sending its equity index, the MOEX, down nearly 50% at one stage - its worst day on record. This even prompted the Bank of Russia to temporarily ban short selling to stem to freefall.
“Currency traders have also abandoned the Russian rouble, which has fallen to a record low against the US dollar.”
“In London, Russian gold miner Polymetal International (LSE:POLY) has shed more than 35% intraday, while mining company EVRAZ (LSE:EVR)z, backed by Russian billionaire Roman Abramovich, is down more than 30%, both languishing at the bottom of the FTSE 100.
- ii view: Rolls-Royce CEO Warren East hands in his notice
- Ian Cowie: does this region offer investment trust bargains?
- Ukraine crisis: Russian ruble vs the euro
- Friends & Family: ii customers can give up to 5 people a free subscription to ii, for just £5 a month extra. Learn more
“However, the UK index has fallen less than some other European bourses due to its exposure to oil and gas. Declines in Russian miners and financial stocks have been tempered by sharp gains in energy, lifting shares in Shell (LSE:SHEL), for example, by more than 4%, making it one of just a handful of gainers on the FTSE 100 today.
“BAE Systems (LSE:BA.) is bucking the downtrend, buoyed by the possibility of strong demand for defence amid the conflict, while precious metals miner Fresnillo (LSE:FRES) is catching a bid as investors flock to safe havens in the hope of preserving their wealth.”
Looking ahead
Hunter explains: “If there is a glimmer of hope among the volatility, which has become a feature of this year even without the latest developments, it is that there will have been certain sectors caught in this crossfire which will have simply been oversold. Such businesses, whose fundamentals will not have changed overnight, will potentially lead the charge as and when sentiment improves.”
“For the moment, matters need to stabilise at a macro level before any sort of market recovery can be entertained. It is impossible to call the bottom in markets such as these, and difficult to anticipate positive catalysts, but turmoil such as this can provide buying opportunities. That particular message seems to be resonating with some of our more steely customers, whose contrarian views are resulting in some interesting buying activity.
“One of the few factors that can be guaranteed in the shorter term is volatility. By the same token, investment is a marathon not a sprint and however difficult that may be to remember in this environment, it should also offer some solace to long-term investors.”
- Chart analysis: BAE Systems and Qinetiq
- Stockwatch: a defensive play for worrying times
- Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)
Scholar adds: “The market was already very volatile at the start of the year, sparked by rising inflation and monetary tightening. Now, with the added uncertainty from Ukraine’s invasion by Russia, markets are likely to remain on edge with strong demand for safe-haven stocks. The imbalance between demand and supply, coupled with geopolitical uncertainty looks set to continue to support an uptrend for oil stocks. Plus, the Ukraine conflict could lead to a surge in cybersecurity attacks from Russian organizations, which in turn may see an upsurge in demand for stocks within the cybersecurity sector.”
Top 10 most traded investments on ii this week (21-23 February 2022) in rank order
Position | Investment | Buys | Sells |
1 | 56% | 44% | |
2 | 64% | 36% | |
3 | 65% | 35% | |
4 | 64% | 36% | |
5 | 64% | 36% | |
6 | 39% | 61% | |
7 | 73% | 27% | |
8 | 50% | 50% | |
9 | 56% | 44% | |
10 | 75% | 25% |
Top 10 most traded funds, investment trust and ETFs on ii this week (21-23 February 2022) in rank order
Position | Company Name | Buys | Sells |
1 | 65% | 35% | |
2 | 40% | 60% | |
3 | 52% | 48% | |
4 | 67% | 33% | |
5 | 52% | 48% | |
6 | 53% | 47% | |
7 | 69% | 31% | |
8 | 35% | 65% | |
9 | 66% | 34% | |
10 | 48% | 52% |
Commenting on ii’s recent trading data, Hunter, says: “So far this week, among the most bought funds is JP Morgan Russian Securities (LSE:JRS), while among individual stocks – and despite a further 27% fall today – Evraz has also featured.
“Nor is the activity focused just on the wider geopolitical implications. The further weakness of the Nasdaq market, in particular, has prompted another round of buying activity in Scottish Mortgage (LSE:SMT), while in the face of a mildly disappointing UK banks’ reporting season, Lloyds Banking Group (LSE:LLOY) and Barclays (LSE:BARC) also feature on the top ten buying table today.”
- Our outlook for 2022: key topics and investment ideas for the year ahead
- Watch our share tips here and subscribe to the ii YouTube channel for free
Scholar adds: “The market was already very volatile at the start of the year, sparked by rising inflation and monetary tightening. Now, with the added uncertainty from Ukraine’s invasion by Russia, markets are likely to remain on edge with strong demand for safe-haven stocks. The imbalance between demand and supply, coupled with geopolitical uncertainty looks set to continue to support an uptrend for oil stocks. Plus, the Ukraine conflict could lead to a surge in cybersecurity attacks from Russian organizations, which in turn may see an upsurge in demand for stocks within the cybersecurity sector.”
Investing is a long-term game
Hunter says: “One of the few factors that can be guaranteed in the shorter term is volatility. By the same token, investment is a marathon not a sprint and however difficult that may be to remember in this environment, it should also offer some solace to long-term investors.”
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.