“The invasion of Ukraine has begun”, Prime Minister Scott Morrison said on Wednesday, noting a full-scale invasion could occur in the next 24 hours.
Following the UK’s lead, the PM announced immediate sanctions for individuals and entities involved in the conflict.
These include travel and financial sanctions against eight members of the Russian Federation’s security council, as well as sanctions against banks, transport, energy and telecommunications utilities, including oil, gas and mineral reserves in two breakaway regions – Donetsk and Luhansk.
Over recent weeks, ongoing uncertainty over the scale and impact of the conflict has driven equity, bond, commodity and crypto markets downwards.
Share markets globally fell just below their January lows, with the Australian market holding up slightly better.
Bond yields are also down due to safe-haven demand from investors, while oil prices have spiked to their highest levels since 2014.
eToro market analyst Josh Gilbert told InvestorDaily that as investors continued to rotate out of riskier assets, particularly as the uncertainty increased, bitcoin and tech stocks have come under increasing pressure.
“If tensions between the two countries remain high, crypto is likely to see additional downward pressure, and it’s anticipated to hit the lows we’ve seen so far in 2022,” he predicted.
“This uncertainty, combined with the Fed’s tightening of monetary policy, has increased investors’ fear in the short term.”
How should investors be responding to the situation?
According to AMP Capital chief economist Dr Shane Oliver, given the difficulty in timing market reactions to geopolitical developments, most equity investors should stick to an appropriate long-term investment strategy.
“Periodic sharp falls in share markets are healthy and normal, but with the long-term rising trend ultimately resuming and shares providing higher long-term returns than other more stable assets,” he said.
“Selling shares or switching to a more conservative investment strategy after a major fall just locks in a loss and trying to time the rebound is very hard such that many only get back in after the market has recovered.”
Dr Oliver also pointed to opportunities that may arise as share prices fall, aligning with earlier comments from deVere Group CEO Nigel Green.
“The best way to stick to an appropriate long-term investment strategy, let alone see the opportunities that are thrown up in rough times, is to turn down the noise around the news and opinion flow that is now bombarding us,” added Dr Oliver.
Mr Gilbert explained that crisis events have historically had minimal long-term repercussions within global markets, backed up by data cited by Dr Oliver which tracked the performance of the US share market following major events including World War II.
On average, the market declined 6 per cent after a crisis event, followed by an average lift of 9 per cent six months later and an overall rise of 15 per cent after a year.
“Events like this illustrate the importance of diversification and avoiding overexposure to a single asset class,” said Mr Gilbert.
“When these tensions arise, some assets such as gold will weather the storm and often perform well, while other assets such as crypto will respond with higher volatility.”
Interest rate uncertainty
Turning to how events in Ukraine could impact interest rates, OANDA senior market analyst for Asia-Pacific, Jeffrey Halley, suggested that a further deterioration could challenge forthcoming plans.
“A full-scale invasion of Ukraine by Russia will leave many central banks with itchy hiking trigger fingers in a quandary. The immediate impact would be an exacerbation of the rampant inflationary pressures globally,” Mr Halley explained.
“But the inevitable slump by equity markets and high-yield bond markets, just as credit is tightening around the world will probably have them [central banks], along with the Fed, hitting the pause button on tightening, and even perhaps unwinding forward guidance,” he continued.
Mr Halley finished his market round-up with a sarcastic nod to Vladimir Putin, branding him another “national leader sowing chaos for their own selfish ends”.
Responding to the news on a human level, Mr Halley concluded: “I really do believe the world should bar men from running any country for the next 20 years”.
“If you do what you’ve always done, you get what you’ve always got.”
