Investors rush to keep up with reverberating global markets with deepening conflict in Ukraine and increasing tough sanctions against Russia.
According to Bloomberg News, Monday saw safe havens like gold, bonds, and U.S. Dollar rallies while risk proxies such as the Australian dollar tumbled. The emerging marketing currencies, including the Turkish Lira and South African rand, came under pressure. The crude oil surged while the European equity futures market tanked.
Investors face a rising commodity price on top of inflated levels caused after recovery from the pandemic. This is in addition to trying to get a hold on how central banks will rejig their monetary policy to tackle the challenges.
Some of the investors and strategists across asset classes, including global macro strategists at Medley Global advisors, Ben Emons, feel that the biggest impact of this crisis will be on energy disruption, food, and other commodities globally.
According to Emons, many companies may disinvest after BP Plc’s plan to dump share in the Russian oil company Rosneft PJSC. U.S. companies may do better than European ones initially.
According to the strategists at National Australia Bank Ltd, the central bank of Russia may become “impotent” in managing the Ruble if sanctions are successful against CBR. The Russian central bank is intended to deny $643 billion worth of FX reserves. As per FX Strategy Head Ray Attrill, if the CBR cannot access the reserves, it cannot save the Ruble from a free fall.
Tough monetary decisions
Silvia Dall ‘Angelo, Senior Economist with Federated Hermes, said that conflict means further deterioration in the growth inflation trade-offs that central banks are facing now.
Pressure on European Banks
On Monday, European banks may come under pressure since some have Russian exposure. According to strategist Rich Kelly of TD securities, there are concerns if payments get restricted.
Austrian Banks has maximum exposure with Russian counterparts at 1.6% of the total banking assets, followed by Italy at 0.6% and 0.2% for France. Strategists expect the ECB to provide liquidity and the authorities to provide support to manage the exposures.
Difficult to short
22V Research strategists headed by Dennis DeBusschere said that while it is hard to take long positions, it is harder to short the market for the long term. The sentiments for dividends and buyback remain high, anticipating a high future return. Also, the buyback and dividend for the operational cash flow as a percentage are not elevated.
It is tough to short slow financial conditions and lower earnings as being short would mean having a solid view of crude going up to $150 falls apart as Russia collates and Europe goes into a deep recession.
Coming to Asian markets, they are likely to swing prominent daily. Still, if one looks at the long-term trend, one can start buying, according to Sang Jin, the Korean Investment Management Company Chief Equity Officer.
