The tension in Ukraine It raises fears that Europe is closer to a war than it has been in decades and the stock markets are beginning to focus on this issue with Russia as the main victim. The MOEX (the country’s main stock market indicator denominated in rubles) and the RTS (which brings together the 50 largest and most liquid securities in an index calculated in dollars) fell 5% and 4%, respectively, during the week, and the annual losses already reach 9% in the case of the first and 12% in the second.
The western parks do not escape the red numbers in the whole of 2022, with Wall Street yielding 6.5% and Europe 1.6%. But these declines have been related to rising bond yields on Fed fears, which has prompted a tightening of growth company valuations. In fact, the Old Continent has suffered this adjustment to a lesser extent and its correction has so far been modest.
“It can be said that today [por ayer] It is the first day that one could think of the Ukraine issue starting to have some impact on the market. European stocks should be more sensitive to this issue and there is a drop of some importance that may partly reflect an increase in geopolitical tensions,” says Nicolás López, director of equity research at Singular Bank.
What is the market beginning to discount? The deterioration of relations between Russia with the European Union and the United States could have significant repercussions for Russia’s energy sector, banking system and economy in terms of ruble convertibility, as well as for top Russian officials if Washington and Brussels impose tougher sanctions.
“These geopolitical and sanctions-related risks represent one of the main limitations for the Russia’s credit rating“, notes Levon Kameryan, senior analyst at Scope Ratings. The expert recalls that the existing sanctions and the risk of more being imposed have discouraged foreign investment.
“Incoming foreign direct investment fell from a annual average of 55,000 million dollars in the period 2010-2013 to about 20,000 million dollars in the period 2018-2021,” he adds.
debt purchases
The search for refuge from the sale of technology shares and the concern about the increase in tension between Washington and Moscow was also reflected this Friday in the sovereign debt market.
Thus, the profitability of T-Note US ten-year bond fell “low when prices rise”, with mid-session data near 5 basis points up to 1.75%, and the 10-year German Bund fell 4 basis points to -0.065% just two days after returning to positive territory for the first time since May 2019.
“The bond rally [por precio] is currently due to investor positioning and de-risking globally due to the ongoing conflict between the US and Russia over Ukraine and reflecting strong weakness in equity markets,” said Andrew Ticehurst, fixed income strategist at Nomura in statements collected by Bloomberg.
Now, is there a real risk of war? In the opinion of Chris Iggo, CIO of AXA Investment Managers, “I don’t think the markets can assess what can happen in these types of events. The result is just binary at a very simplistic level (Russia invades or not), but even that It raises the question of what the markets should respond to. In this scenario, the expert points out that the assets sure they would behave very well, equities would sink due to risks to economic growth, and the dollar would soar against the euro because a war in Ukraine would be a very immediate practical problem for Europe. “Russia has a strong card to play in terms of natural gas supply to Europe and further price increases could do real damage to European economies, including the UK,” Iggo concludes.
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