Global stock markets have had a moment of respite from the Russia-Ukraine tensions after Russian president Vladimir Putin removed troops off the Ukrainian border, but experts have warned that investors are not in the clear.
Markets have been shaken by the growing threat of a Russian invasion of the Ukraine in recent weeks, with UK and European stocks experiencing a strong sell-off as a result.
Around £42bn was wiped off UK stock valuations at the open on Monday with the FTSE 100 down 1.7%, although it has managed to reclaim some of those losses today after early signs that Putin would be removing troops from the Ukrainian border.
This was a positive shift after weeks of growing geopolitical tensions, but concerns that Russia will invade Ukraine remain high, despite Putin denying claims that Russia is threatening an invasion.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “First signs that Russia may be pulling back from the brink of war is being greeted with a tentative sigh of relief by investors, with some sectors making small strides of recovery.”
The travel sector was a clear winner as shares in International Consolidated Airlines Group were up almost 5% by market close.
Crisis talks among global leaders are ongoing and they have continued to warn the Kremlin that any aggression will be met with retaliation.
Alongside returns, the geopolitical events have negatively impacted investor sentiment. Hargreaves Lansdown reported that investor confidence in the UK had fallen by 11% in February, the biggest drop of any global region. Sentiment was down 10% in Europe and in the US there was a 7% decline.
Streeter said investors were facing “twin troubles” of the looming conflict and the soaring energy and oil prices it has caused.
Russia is one of the biggest oil and energy suppliers globally and even before political tensions began, the price of these assets had already been pushed up by inflation. This escalating situation has sent the oil price soaring to the highest levels since 2014, hitting $95 a barrel earlier this week.
The supply of natural gas could has also become a bigger issue as US president Joe Biden threatens to shut down Russia’s Nord Stream 2 pipeline if it does invade Ukraine. This pipeline provides the majority of Europe’s natural gas and Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, said if it was shut down this could push oil prices up further “making inflation more of an issue”.
Economic sanctions against Russia could have a similar impact, according to Gilles Moëc, chief economist at AXA Investment Managers. He said any restrictions could “easily” pushing up energy costs in Europe by more than 10%.
Streeter said that energy markets are “clearly on edge” and if the oil price goes any higher it would add more pricing pressures onto companies, with consumers bearing the brunt of this via increased bills.
For investors they could expect more insolvencies among smaller companies as they struggle to manage the extra expense, Streeter said, whereas “big brands with pulling power may continue to be resilient”.
There is never a good time for bad news but now was especially bad timing for markets, according to Chris Beauchamp, chief market analyst at online trading platform IG, who said that markets are “ill-disposed to cope with bad news of any kind” as they still recovering from Covid.
He added that this headwind is much harder to quantify in terms of its economic impact “and thus promises to darken the outlook for stocks in a way that is more reminiscent of the first weeks of the Covid crisis rather than any other crisis since then”.
The fallout from the tension remains to be seen but it important that investors do not sell-out or make panicked changes to their portfolios, said Patricia Ribeiro American Century Emerging Markets Equity fund, who said they need “to hold steady and watch closely”.
She said her base case is that the likelihood of a NATO or US physical confrontation with Russian soldiers remained low.
“While we are not currently making changes to our positions, we are monitoring the situation as the US and NATO work through diplomatic channels to address fundamental differences, including NATO’s potential expansion in Europe. The situation remains fluid.”