Perspective

Ukraine invasion: markets one step closer to "peak uncertainty"


We’re all shocked and saddened by events in Ukraine. Although we are talking here about the impact on markets, we acknowledge first and foremost that this is a human crisis with potentially awful consequences for millions of people.

However, at times like this our clients expect us to stay level headed, which is what we’re trying to do in assessing the market implications.

Previous crises have shown us that what markets hate most is uncertainty. The worst phase for the market is when uncertainty is at its peak.

Now Russia has invaded Ukraine we have moved a step closer to peak uncertainty and into the realm of actual bad news. This is easier for investors to price, even if the consequences are negative.

The one major source of uncertainty is how the Ukrainians and the Western powers will react. The assumption is that the response will be ever tougher sanctions. But there is also the question of whether at some point the West will be willing to intervene militarily.

So I don't think we have reached "peak uncertainty" just yet. At this stage I wouldn't advocate attempting to time the bottom of the market - let's at least get through the weekend first.

All the while we're assessing the consequences, stock by stock, bond by bond and have the flexibility to respond if and when buying opportunities appear.

In terms of regions, some people are treating this as an emerging markets issue, but it is broader than that. Europe in particular is arguably the most exposed to the impact of what is going on.

Looking beyond the impact of geopolitical risk on risk premiums, the main economic transmission mechanism is via energy prices. This poses particular challenges for Europe given its reliance on Russian energy.

This has detrimental implications for growth and complicates the picture for the European Central Bank.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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