Erste Asset Management

Escalation of the conflict between Russia and Ukraine: are the markets at risk?

Escalation of the conflict between Russia and Ukraine: are the markets at risk?
Escalation of the conflict between Russia and Ukraine: are the markets at risk?
(c) SAUL LOEB / AFP / picturedesk.com
Share post:

What has happened in recent days?

The tensions between Ukraine and Russia continued to keep the global markets in suspense on Monday. Russia has so far defied any diplomatic attempts by the West to strengthen the armistice in Donbas and to continue negotiation in order to prevent the crisis from escalating. Instead, President Putin announced after a meeting of the Security Council of Russia that he would officially recognise the separatist areas in Eastern Ukraine. His instruction to the Ministry of Defence to send “peacekeeping forces” (© President Putin) to the rogue regions escalated the situation further.

The European equity market was hit by these developments on Monday, incurring clear drastic of 2.2% (EuroStoxx 50). The oil price increased substantially, and gold was in high demand as well as safe haven. The Asian trading session on Tuesday resulted in noticeable losses, with futures contracts on the US stock exchanges suggesting lower opening levels after the national holiday in the USA.

Apart from the Ukraine crisis, the recent economic data have been positive. In Europe, the purchasing managers’ indices were published yesterday, exceeding expectations significantly in particular in the service sector.

Only negotiation tactics?

Despite the step taken by the Russian government today, the degree of escalation is currently below that of an open conflict and can be seen as high-pressure negotiation tactics. Western heads of state and government have threatened a strong response to any form of recognition of the separatist republics and will probably impose sanctions and other measure against Russia. 

On Tuesday, the focus is on the impact of the recognition of both areas with respect to the military help provided by Russia to the separatist republics and the penal measures taken by the West.

Possible scenarios from the perspective of Erste Asset Management

From our perspective there are currently two major scenarios:

  1. The new situation has created a fragile stalemate that is defined by initial “commensurate” sanctions of the West against Russia in order to be able to maintain the threat of harder sanctions. In this scenario, the door would remain open for diplomacy, which could contain the damage for the global economy.
  2. The recognition could be a springboard for a larger invasion of Ukraine by Russian forces, which Western heads of state and government have warned against in recent weeks (above all, Joe Biden and Boris Johnson). This could lead to hard sanctions against Russia and result in more severe effects on the global economy.

In both cases, we expect volatility to remain high on the markets. Also, the more restrictive measures announced by central banks in recent months could be pushed back at least in part.

In our funds and portfolios, we stick to the positions that we have communicated over recent weeks for the time being.

CONCLUSION:

The Russia/Ukraine conflict is keeping the markets in suspense. Everything is possible – from continued diplomacy in order to contain the escalation to harder sanctions in case of a more comprehensive invasion. The volatility on the financial markets will remain high.

Legal note:

Prognoses are no reliable indicator for future performance.

DOSSIER

RESPOND TO THE ARTICLE

Legal disclaimer

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English.

The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in conjunction with the InvFG 2011.

The currently valid versions of the prospectus, the Information for Investors pursuant to § 21 AIFMG, and the key information document can be found on the website www.erste-am.com under “Mandatory publications” and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the key information document is available, and any other locations where the documents can be obtained are indicated on the website www.erste-am.com. A summary of the investor rights is available in German and English on the website www.erste-am.com/investor-rights and can also be obtained from the Management Company.

The Management Company can decide to suspend the provisions it has taken for the sale of unit certificates in other countries in accordance with the regulatory requirements.

Note: You are about to purchase a product that may be difficult to understand. We recommend that you read the indicated fund documents before making an investment decision. In addition to the locations listed above, you can obtain these documents free of charge at the offices of the referring Sparkassen bank and the offices of Erste Bank der oesterreichischen Sparkassen AG. You can also access these documents electronically at www.erste-am.com.

N.B.: The performance scenarios listed in the key information document are based on a calculation method that is specified in an EU regulation. The future market development cannot be accurately predicted. The depicted performance scenarios merely present potential earnings, but are based on the earnings in the recent past. The actual earnings may be lower than indicated. Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance.

Please note: Past performance is not a reliable indicator of the future performance of a fund. Investments in securities entail risks in addition to the opportunities presented here. The value of units and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your units. Persons who are interested in purchasing units in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision. If the fund currency is different than the investor’s home currency, changes in the relevant exchange rate can positively or negatively influence the value of the investment and the amount of the costs associated with the fund in the home currency.

We are not permitted to directly or indirectly offer, sell, transfer, or deliver this financial product to natural or legal persons whose place of residence or domicile is located in a country where this is legally prohibited. In this case, we may not provide any product information, either.

Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to § 21 AIFMG for restrictions on the sale of the fund to American or Russian citizens.

It is expressly noted that this communication does not provide any investment recommendations, but only expresses our current market assessment. Thus, this communication is not a substitute for investment advice, does not take into account the legal regulations aimed at promoting the independence of financial analyses, and is not subject to a prohibition on trading following the distribution of financial analyses.

This document does not represent a sales activity of the Management Company and therefore may not be construed as an offer for the purchase or sale of financial or investment instruments.

Erste Asset Management GmbH is affiliated with the referring Sparkassen banks and Erste Bank.

Please also read the “Information about us and our securities services” published by your bank.

Subject to misprints and errors.

Leave a comment Required fields are marked with *

Your email address will not be published. Required fields are marked *