How the War in the Ukraine is Impacting the Financial Markets

As an Investor What Should You Do?

March 4, 2022

 

The full-scale invasion of Ukraine by Russian forces is having an effect on worldwide global financial markets and Canada has not been untouched. Worldwide stocks have been falling, while oil prices have been ascending as sanctions against Russia are ramping up.

Economic Sanctions

First-round sanctions against Russia didn’t do much, however, the newest rounds – which have included freezing central bank reserves in the country – have packed a solid punch. Realistically, there isn’t enough trade between Russia and Canada for sanctions to hurt Russia’s economy, however, the cumulative impact of all western nations sanctioning Russia is what’s having the greatest impact. Canada has restrained about $750 million in exports to Russia mostly in the aerospace, IT and minerals sectors and has barred relationships with several Russian financial institutions.

Effects of Russian Sanctions on Canadians

There are two major areas likely to put a dent in Canadian citizens’ wallets – at gas pumps and at grocery stores. The global pinch on Russia’s access to capital markets will cause oil exports from Russia to dry up. There will be no way to pay for them once those markets close. We’ve already watched oil prices surge to US$100 per barrel recently and they could surge higher still.

The global Society for Worldwide Interbank Financial Telecommunication (SWIFT) system has barred certain Russian banks from conducting business and issuing payments which, analysts say, will cause the country to lose about 30% of its foreign trade – a strategic move ensuring sanctions have a maximum impact on Russia while curbing negative impacts on other European countries.

What Should Investors Do?

The solution is not to panic and make hasty decisions. Markets may get shocked and they may correct but shifts are temporary. Investors went through a similar market scare in 2014 during the last Russian foray into the Ukraine. Investors can expect a similar recovery this time.

So, the bottom line is to let the market steady itself. In the interim, there are plenty of other areas in which to invest. History shows that while geopolitical crises such as the one unfolding between Russia and Ukraine can temporarily roil markets, they don’t typically have long-term consequences for investors.

Takeaways

  • Stock markets tumbled in the days following Russia’s invasion of Ukraine. At the date of the posting of this blog the current crisis has seen major markets fall by about 10%. Analysis shows this has historically happened in the period after such turbulence;
  • Russia is not enough of a global player outside of oil to have too much of an impact. It accounts for about 3% of Eurozone exports, less from the US. Russia is not a driver of global demand but there could still be dislocations and liquidity problems in financial markets;
  • Events in Ukraine will speed up the energy transition. Energy independence through cheap and sustainable power will be at the forefront of every policymaker’s decision-making process from now on;
  • War is unpredictable. Professionals contend investors should seek safety. Oil, natural gas, commodities, and gold could serve as safe havens in the months ahead and investors would be wise to keep an eye on these sectors, as the situation evolves. Diversification and professional management can help manage short-term risks while pursuing long-term risks.

And the number one takeaway to remember is that you should never make hasty investment decisions in a downturn to try to time the market. Be sure to reach out to your Investment Advisor, to consider your options, especially if you are in retirement or close to retirement. However, for the most part, the best thing to do is to wait out the volatility.

Be sure to tune in monthly in 2021 for my continued thoughts on the markets, how they may change and what to expect.

Looking to make a change, want a second opinion, or looking for additional advice? Feel free to reach out to me any time by phone or email.

Author Steve McBride, Investment Advisor, Echelon Wealth Partners, looks forward to connecting with you about your future wealth management needs.

 

 

Disclaimers

This blog is solely the work of Steve McBride for the private information of his clients. Although this author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and this author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of this author alone, and they have not been approved by, and are not necessarily those of, Echelon.

Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by authors. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

The opinions expressed in this report are the opinions of this author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute this author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results.

These estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Echelon Wealth Partners Inc., its divisions, subsidiaries, and affiliates, do not provide any income tax advice and does not supervise or review any income tax returns. Please consult your accountant.

Source(s): 

https://blogs.cfainstitute.org/investor/2017/08/29/u-s-capital-market-returns-during-periods-of-war/

https://www.fidelity.com/learning-center/trading-investing/ukraine-russia