Thursday 24 February 2022 will be known as the day Russia started taking military action in Ukraine, with explosions being seen and heard in Kyiv. We don’t know how extensive the attack will go on to be and the objective remains unclear. It could be limited to Russia taking control of the rest of the Donbas region not already controlled by the ‘Pro-Russian Rebels’. However, President Putin referred to the ‘demilitarization and denazification of Ukraine’, which could imply he is seeking a full regime change.
The UK & US governments have both confirmed there will be harsh sanctions aimed at the Russian economy, with Prime Minister Boris Johnson highlighting this in Thursday afternoon’s announcement; however military involvement from NATO forces looks to be off the cards at least for the time being. We expect the sanctions will not make much difference to Putin’s actions at in the short term. The Russian president has been planning this move for a long time and will have factored in such reactions so it is unlikely to cause a swift change in direction. The Russians will be impacted by the sanctions being in place, though without further details we cannot be sure of the wider impact.
Markets reacted in traditional fashion to conflict, seeing a spike in volatility across all areas of the market on Thursday, we see oil prices reaching highs and volatility returning to equity markets, with the Eurostoxx Index dropping 3.5%(1). US markets also commenced trading in negative territory though bounced back to finish the day positive, with the NASDAQ index achieving a return of 5.66% for the day(1). We expect market volatility to continue, at least for the short term, whilst the impact of sanctions settles in and as the situation in Ukraine develops.
While an aggressive rhetoric of this nature is unsettling, the message with investments remains the same as any period of market volatility. Remaining calm and avoiding any ‘knee jerk’ reactions is the best way forward, trying to ‘time the market’ has repeatedly been proven to be an inferior strategy to the former. Our investment partners assure us they continue to monitor the situation and are comfortable with their choice of long-term investments in high quality businesses. Elements of market volatility is inevitable in difficult times like this, though it is the skill of remaining calm and having a high level of conviction in a robust strategy which will more likely achieve greater long-term returns.
Our thoughts go out to those all impacted by the current events.
(1) – Source: FE Analytics