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?
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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.


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.



Legal disclaimer

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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 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 A summary of the investor rights is available in German and English on the website and can also be obtained from the Management Company.

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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.

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