Broker Check

The Russia/Ukraine Conflict And Portfolio Positioning

| February 22, 2022

Potential Investment Implications of a Russian Invasion of Ukraine:

  • Increase in global energy prices – Russia supplies roughly a third of all the natural gas consumed in Europe and accounts for over 10% of global oil production. This may further drive short-term inflationary pressures and may curb energy consumption.
  • Possible knee-jerk flight to safe-haven assets – We may see global investors flee to U.S. Treasuries, overweight dollar denominated assets, and commodities (such as gold).
  • Increased equity market volatility should be expected in the near term. The lasting impact to stocks from such events, however, has historically been absent. The table below illustrates major geopolitical events (i.e., shocks) along with their intraday market impact and total drawdown. These are events that were either anticipated, or largely unforeseen, with the latter providing for a notably more severe short-term drawdown. The conclusion we’re able to extrapolate from the data is that the potential for pessimistic market sentiment from a Russian invasion of Ukraine remains highly probable, yet the aggregate impact from this [largely] anticipated event may not be as severe, or elongated, as what conventional wisdom may suggest.

Despite the uncertainty an invasion may represent, we remain committed to a carefully structured equity market participation approach when considering the aggregate health of consumers in developed economies. To further solidify our equity viewpoint, it’s important to note that Russia maintains a small exposure to global indices. In fact, Russia makes up only 3.2% of the MSCI Emerging Market Index and just 0.4% of the global stock market as measured by the MSCI All-Country World Index. Ukraine has no exposure in either index.

Edison Byzyka, CFA – Chief Investment Officer – Credent Wealth Management

2/18/2022 Commentary


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All information is historical and there is no guarantee of future results.  All indices are unmanaged and may not be invested into directly. Investment advice offered through CX Institutional, a Registered Investment Advisor.