The War in Ukraine

The dreadful news from Ukraine has, in one fell swoop, woken Europe from its reverie.  The world, suddenly, looks more dangerous and that danger is uncomfortably close to home.  Putin has decided that the world order should be that of pre-1991.  It seems fairly obvious to most that this is utterly unobtainable – any victory in Ukraine will be pyrrhic.  Over the past 30 years the world has moved on too far to be placed in an iron grip, once again.  Indeed, the invasion has only served to strengthen the resolve of the West and NATO – and particularly that of the blundering and beleaguered EU – despite Putin’s best efforts, over the years, to sow seeds of discontentment in the West through infiltration and insurrection.  The galvanisation of the West against Putin was rapid and fierce – one of many delinquent miscalculations about this war. 

Since the start of this year investors and investment markets have had to cope with rapidly rising inflation (is it sticky or not?), rising interest rates (how fast and how high will they rise?) and lower post-coronavirus growth (will everyone go back to work and continue to earn and spend?); now they have to calculate the effect of this war.  

That is impossible since the outcome is so unclear.  Immediately, markets were shocked and fell, but regained all ground the following day.  This week, we have seen a more typical reaction to such profound uncertainty – a rush to safety in government bonds (but with rising interest rates bonds are far from safe) and European equity markets have fallen by about 8%.  Much of the fall is the result of sanctions – the effect of not doing business with Russia.

Wild swings in valuations shall be the norm through 2022.  Markets hate uncertainty and news is likely to be either very good or very bad.  Given, though, the extra-ordinary investment returns that have been earned since the global financial crisis of 2008, a year of poor returns has to be expected at some point.

The lever which matters most is still the rate of interest charged by central banks – one effect of Putin is that the likely shape of future interest rate rises may be less steep than markets first feared.

We should add that discussing investments and money might appear callous, whilst the people of Ukraine and Russian suffer an appalling loss of life, liberty and hope.  Our job, though, is to provide advice, guidance and management of your investments and savings to best navigate the present and likely future environment.  We will continue to do so to the very best of our abilities and urge you to contact us should you have any concerns.

Andrew Longbon

For, and on behalf of, Longbon & Company