Talking Point

Russia’s invasion of Ukraine last week and the dawning realisation that the West has another deranged and delusional dictator to deal with.

What is happening

This has clearly injected a new seam of uncertainty into markets with global equities swinging wildly during the past five days and some safe haven assets appreciating sharply in value e.g., the benchmark UK 10-year gilt yield spiking to 1.49% (it has risen over 80% during the past year).

What it means to investors

Short-term, it likely means further volatility as markets grapple with fragmented information and the implications for prices in energy and commodities (grain and fertiliser), for example. While food and energy costs do not have the same capacity to shock as they did in the 1970s, the peak for inflation will now probably be pushed out further. Whichever way you look at it, further inflationary pressures and abrupt changes to central bank interest rate moves do not encourage optimism. For the global economy – only just now regaining ground after the two-year pandemic hiatus - this is undoubtedly a setback, albeit of as yet unknown proportions.

Whatever the eventual outcome, it will doubtless lead to a reassessment of energy policies globally, increased defence (and cybersecurity) spending among NATO countries in particular, and a generally unwelcome raising of barriers to free trade and friction-less markets. There will be many as yet unforeseen dislocations, which will impact company earnings (not just BP’s).

Longer-term, such ‘black swan’ events only go to reinforce the requirement for investors to be correctly positioned on the risk curve in relation to their investment objectives, time horizons and personal circumstances.

Important Information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment decisions. Please also note the value of investments and the income you get from them may fall as well as rise and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.