Henry Gaskin
Posted By Henry Gaskin

Even prior to the Ukraine crisis, the year had started challengingly for global equity investors, with central banks causing jitters through their hawkish monetary policy tones, in response to rising inflation.  Over the last few days, events in Ukraine have lasered into the focus of markets, and as the world wakes up to Russian invasion, on Thursday morning, equities have again sold off sharply.

The impact on energy prices has, as expected, also been sharp and sudden given the potential disruption to Russian gas supplies.   This will continue to exacerbate inflationary pressures for now.   Gas exports from Russia to Europe account for around a third of Russian GDP, so whilst any prolonged disruption would cause pressure on European economies, Russia would also feel sharp economic pain.  Central Banks will be watching the potential economic impacts carefully, when planning the future path of monetary policy.

Whilst the news is of course troubling, and the path of the conflict and its longer-term ramifications for the security in the region unpredictable, we would remind clients that periods of concern such as these are times for calm and rationale thinking, rather than panic and knee-jerk reactions.   The following chart helps highlight the benefits of calm and patience for long-term investors, when looking back at periods of market (US S&P 500) volatility triggered by previous geopolitical events.

Once the short-term noise around the military action abates, the broader economic landscape for global growth and company earnings will outweigh the shorter-term volatility we are currently seeing.   The impact of trade disruption with Russia will be limited, with this only representing 1.5% of EU GDP and 0.5% of US GDP.  

Our portfolios are diversified both globally and across different asset classes.  These are built for long-term investment outcomes for clients, and we would encourage you all to remember their purpose as part of long-term financial plans.   We have been making alterations to portfolios in recent weeks to help position the portfolios more resiliently for higher inflationary environments, including increasing exposure to the UK energy sectors which will be proving beneficial at the current time.   We also retain a bias towards active funds in our portfolios, where the underlying fund managers will be looking to manage the funds decisively to take advantage of volatility in markets in pursuit of long-term objectives. 

Please liaise with your usual Wealth Manager contact if you wish to discuss anything in more detail.

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