Commodity prices across the board have spiked in the weeks since Russia launched an invasion of Ukraine, FE fundinfo data shows, leading to knock-on effects in equity and bond markets.
The conflict in Ukraine has contributed to worries around inflation by adding to supply bottlenecks for many key commodities. In addition, the largest conflict in Europe since the second world war has hurt investor sentiment.
While the main cost of the invasion is the terrible humanitarian impact, below are 10 charts showing how markets have been affected over the weeks since the invasion was launched on 24 February.
Asset classes
As the chart below shows, the global stock market is broadly flat. However, it doesn’t show how equities have sold off dramatically in some sessions only to rally back soon after.
The figures below, as well as those in the other charts on this article, show price performance to exclude any income payments made over this period.
Performance by asset class since 24 Feb 2022
Source: FinXL
Commodities have surged since the start of the conflict owing to Russia’s status as an exporter of key resources such as oil, gas, aluminium, nickel, lead, cobalt, copper, wheat and corn.
The impact of this is no more clear than in the spike in the oil price, with the S&P GSCI Brent Crude Spot index gaining more than 20% since the invasion started.
Investors have also moved into traditional safe havens such as gold and government bonds as part of their risk-off stance.
Geography
A look at the performance of stocks on a geography basis shows how the US has managed to rise 3.1% since 24 February, which helped developed markets (represented by the MSCI World) outperform their emerging market counterparts.
Performance by geography since 24 Feb 2022
Source: FinXL
Unsurprisingly, given that the conflict is taking place in the region, Europe’s Euro STOXX index has fallen more than 7.5% since Russia launched its invasion.
Not shown on the chart is the massive fall in Russian stocks. The country has been subjected to heavy sanctions from the international community, while trading on the Moscow Exchange was shut the day after the invasion was launched and Russian equities have been removed from many indices.
Commodities
The below chart is pretty big but given that the main market impact is being felt in commodities, we felt it is important to give as complete a view as possible.
Performance of commodities since 24 Feb 2022
Source: FinXL
What’s clear is how energy and agricultural commodities have jumped in price in recent weeks. This will contribute to the inflationary spike currently being seen across the globe and exacerbate the ‘cost of living crisis’.
Investment style, industry and market cap
The below chart reflects how the various investment styles have performed relative to global equities (represented here by the MSCI AC World index) since Russia launched its invasion.
Performance of investment style since 24 Feb 2022
Source: FinXL
Investors have focused on quality stocks, which are another perceived safe haven in times of uncertainty. Quality stocks tend to have strong balance sheets, competitive advantages and stable earnings growth, which offer a degree of resilience when the economy is struggling or the outlook is being clouded by conflict.
Value stocks have also rallied. Many energy and materials businesses are considered value stocks and they have become more attractive as commodity prices soared.
Performance by industry since 24 Feb 2022
Source: FinXL
The above chart illustrates this point more clearly, showing the 6.4% jump in the MSCI AC World Energy index over the past couple of weeks. These companies are the obvious beneficiaries of the spike in oil and gas prices that has been caused by the conflict and sanctions on Russia.
The MSCI AC World Utilities index has risen even higher than energy stocks, as these are another way for investors to play rising energy prices. Utilities also tend to benefit from stable earnings and price power, which provides some safety in times of heightened market volatility.
Performance by market cap since 24 Feb 2022
Source: FinXL
Despite the nervousness in markets, small-cap stocks have strongly outperformed their large-cap peers since the invasion started. FE fundinfo data shows the MSCI AC World Small Cap index is up 2% since 24 February compared with a gain of just 0.1% from the MSCI AC World Large Cap.
This could be down to large-caps being more liquid and therefore easier to quickly trim in times of market uncertainty, while investors may also be sticking with smaller companies as they are more geared to their domestic economy rather than the international scene.
Performance by style and market cap since 24 Feb 2022
Source: FinXL
The combination of the above points means that small-cap value stocks have been the best place in the market to be in recent weeks after the MSCI AC World Small Value index rose 2.4%. MSCI AC World Small Growth followed with a 1.6% gain.
Fund sectors
Across the Investment Association fund sectors, performance has been mixed. If we start with equity funds, it should come as little surprise that the IA Commodity/Natural Resources sector has posted the best average return since the Ukraine invasion started.
Indeed, all of the 20 best performing individual funds over this period invest in energy stocks and other commodity businesses (although not all of these funds reside in the IA Commodity/Natural Resources sector).
Performance of equity fund sectors since 24 Feb 2022
Source: FinXL
However, most equity sectors have made an average loss over recent weeks – especially those that concentrate on emerging markets or European markets.
Performance of bond fund sectors since 24 Feb 2022
Source: FinXL
Among the bond sectors, funds that invest in emerging market debt were the worst hit as investors worried about a default from Russia given the collapse in the rouble and the impact of sanctions.
US treasuries and inflation-linked bonds have been the strongest performers, given the attraction of safe havens and assets that can protect against inflation.
Performance of multi-asset and ‘other’ fund sectors since 24 Feb 2022
Source: FinXL
Of the remaining fund sectors, the property peer groups held up best and managed to generate small returns, while defensive sectors such as cash funds and absolute return strategies minimised losses.