How will the markets react in the event of further developments in the Ukrainian crisis? It is a must question today in light of the escalation of the Ukrainian crisis. In fact, over the weekend the risk of an invasion of Ukraine by Russia increased considerably, several nations advised their citizens to leave Ukraine. and the tensions are translating the markets tune to the downside.
Three scenarios
Walid Koudmani, Chief Market Analyst XTB, Talks about three possible scenarios: invasion, tension and compromise. “The worst case scenario is that ofinvasion, the one already mentioned by US intelligence. Invasion means sanctions, but sanctions are not really the key to fighting back here (as bigger weapons – like cutting Russia off SWIFT – are presumably out of the question). Markets know that if Russia invades, forcing it to withdraw will be costly and will fuel uncertainty and fear. Critically negative for Russian equities, negative for global equities, positive for oil and precious metals and USDRUB.
The most likely scenario could be that of a tension extension: Moscow can pose a threat as long as it achieves certain results (talk of autonomy or even referendum in the eastern part of Ukraine). While politically complicated, this scenario can actually be a relief for the markets. As long as the risk of invasion decreases, this scenario is positive for equities while it is negative for oil, precious metals and USDRUB.
Finally a scenario that we would like to see: there is a good one compromise and Russian troops were ordered to move away from the Ukrainian border. This would be extremely positive for equities (especially Russian banks and RUS50) while negative for oil, precious metals and USDRUB. Unfortunately, this scenario also appears to be the least likely ”.
What to keep an eye on on the markets
Walid Koudmani also looks at stocks and market segments more directly affected by the developments of the Ukrainian crisis. The titles VTB e Sberbank they are almost synonymous with sanctions against Russia. “No wonder these stocks are among the most vulnerable on the equity side – explains the expert -. Investors can also focus on the diversified RTS (RUS50) index in which Sberbank has a 14% stake: the index also has many energy stocks and is down 30% from its highs at the end of 2021. A less obvious choice is the Nasdaq. Why should US tech stocks react to the conflict in Europe? Well, since this market has its own list of problems (mainly Fed decisions), other bad news may not be welcomed by investors ”.
It should not be forgotten that Russia is the second largest oil exporter which is also a substitute for natural gas which has already been scarce in Europe. “Gold has traditionally been a” safe haven “in times of geopolitical uncertainty, but we would like to turn your attention to palladium and platinum: these are also precious metals, but Russia is much more important here being number 1 and respectively. the 2nd exporter. Finally, both Russia and Ukraine are important producers of Wheat ”, explains the XTB strategist.
On the currency front, any conflict is detrimental to the Russian ruble despite high oil prices and significant increases in interest rates in Russia. “On the other hand, USD attracts liquidity in times of trouble, so USDRUB may be a choice for investors.”