How The Russia Ukraine Conflict Is Impacting Your Investments.

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…Uncalled for move Mr. Putin. 

Unless you’ve been living on a different planet, you should all be well aware of the catastrophic events currently happening within the continent of Europe. Russian dictator Vladimir Putin invaded Ukraine with the likely intent of toppling the current government and plausibly placing a puppet regime in charge to act on behalf of Russians intentions. 

The invasion or so-called “training routine” has sent shockwaves throughout global sentiment, economies, and inevitably, international financial markets.

In this write-up, we aim to cover how this conflict may impact your investments, for the better, or for worse. 

Interest Rate Hikes 

Ahh, good-old interests rates have been quite the hot topic over the past couple of years, and once again, the federal reserve (the fed) seems to be pushed into a corner thanks to the recent developments in Ukraine. 

Until not too long ago, Jerome Powell (chair of the US Fed) has confirmed intentions to increase the interest rates to combat the ‘loose money’ dispersed throughout 2020 and 2021, supporting individuals and businesses during the peaks of the pandemic. 

To make matters worse for the Fed, global markets have also experienced shortages across many sectors, most notably within semiconductor and labour markets.

The combination of stimulus packages coupled with supply-side bottlenecks has caused inflation rates to skyrocket between approx 6%-10% around the world. With the Russian invasion of Ukraine now on the table, the fed has another issue to deal with on its plate:

Inflation typically rises sharply both during and especially, in the aftermath of major wars, with median inflation peaking at 8% one year after the war has ended.

With the current inflation rates already swollen, the conflict in Ukraine will most likely continue to push the bar even higher. 

Western governments have shown support and solidarity for the Ukrainian people, forcing sanctions on the Russian economy, and driving the Russian ruble down approximately 50% in value. In addition to this, Europe, America, and other parts of the world have banned the importation of Russian gas and oil.

To put things into context, Europe imports approximately 41% of its natural gas from Russia, with Germany being the largest importer with approximately 32% of its total gas supply coming from Russia.

 

 

With the Russian gas supply abruptly coming to a close halt in Europe and America, global economies will likely need to add energy supply to their growing palette of shortages. This could only possibly mean one thing — higher prices transferred to the ordinary individual!

As companies continually aim to reach their profitability targets (whilst simultaneously keeping operations open), leaders of business may be forced to increase the sales prices of their goods and services to outweigh the growing costs brought about by supply shortages, likely leading to: 

A Drop In Consumer Confidence 

1. Disposable income.

If people have less money in their pockets once deducting all applicable living costs, then their risk appetites become severely diminished. This means that consumers are less likely to engage in economic activity, prompting people to save more. 

This hurts businesses. As fewer people spend their money, fewer products and services are sold across the board. 

In the near term, this could lead to a recession! 

2. Increase In Bad Sentiment

Inevitably, it’s pretty hard to remain positive about the foreseeable future. Russian dictator Vladimir Putin appears to have no intention of stopping his onslaught of Ukrainian land and seems very determined to achieve his objectives of occupancy. 

In the eyes of the everyday consumer, intentions would be to save more rather than spend their money, this will become more evident should things start to escalate further. 

International financial markets are significantly influenced by sentiment, and therefore, as fears start to increase over the situation in Ukraine, we can assume negative impacts on the value of one’s assets (in most cases). However, certain industries do stand to benefit.

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Industries That May Benefit 

Oil industry

As Europe tightens its grip on the Russian supply of oil & gas, European countries are in massive demand of energy supply to make up for the looming shortfall. 

This is the short-term has led to the increase in the prices of oil:

 

Financial Institutions

 As mentioned in other write-ups, when the fed increases interest rates, it tends to benefit lenders of finance such as banks. This is because the cost to acquire debt and other forms of finance become more expensive, hurting profitability margins for borrowing companies, but quite the opposite for lending companies.

Furthermore, more and more people will be more likely to allocate their savings in higher interest rate accounts, encouraging people to save more and keep their money within financial institutions. 

Bonds May Start To Look Attractive

Should Bond yield rates start to rise in an attempt to combat inflation, investors may be more willing to rotate their capital out of the equity market t into the bond market. 

(that is if the return on investment on secured governmental bonds ever becomes more compelling)

Renewable Energy Sources

A plausible long-term headwind for the renewable energy industry, especially here locally within Europe. As the conflict within Ukraine arose, it reviled Europe’s over-dependence on Russia to supply it with energy. 

As we progress into the future, it may be expected for the adoption rate of renewable energy will continually rise. This conflict may have just accelerated future adoption rates, as Europe scrambles to find other alternatives to Russian gas.

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To Wrap It All Up

Things are looking pretty gloomy, regardless of the outcome on the financial markets, our focus should currently be on helping those people suffering within this devastating and uncalled for conflict. 

 

Financial markets rebound. People do not. 

 

If you’re interested in donating to a good cause, we invite you to join us in an initiative that is focused on providing food and supplies to those caught within the crossfire. 

The proceeds can be forwarded directly to Piotr Andruszko who is already in Poland carrying out the supportive work.  The amounts will be used to buy the needed supplies directly from Poland and shipped to Ukraine by Piotr. 

For peace of mind, we can confirm that established organisations have already contributed to this initiative, and is backed by ISL. 

Donated amounts can be sent to the following QR code. 

The investmenthub is not being endorsed to share this charity, nor are we associated with it in anyway. Our aim is just to help.