Markets shrug off politics

Despite the recent escalation of the Ukraine crisis following the downing of flight MH17, markets have bounced back.

The crisis in Ukraine escalated sharply last week after Malaysia Airlines flight MH17 was shot down with Russian separatists the key suspects. Yet after a brief dip last Thursday when the news broke, markets have bounced back. Early this week, the S&P 500 index in the US hit a new record high close to 2,000.

What the commentators said

Investors seem to be ignoring geopolitics even though the situations in both Iraq and Ukraine are potentially dangerous if they get worse. Each could cause a spike in oil prices, "a real headwind for the global economy at a time when... growth is so fragile".

Ultra-loose central-bank policies have acted as "a giant anaesthetic" for investors, said JP Morgan Asset Management's Andrew Goldberg. Investors have been conditioned to buy on the dips' in the belief that central banks will always come to the rescue with more money printing. Without this support, investors would be far more rattled by all the uncertainty.

And Russia may be less resilient to this crisis than many investors appear to believe. Even if the European Union doesn't impose harsh new sanctions, the outlook for the economy is clouding over, said Hamish McRae in The Independent.

Growth was barely positive before the invasion of the Crimea. Now the rising perception of the risk of investing in Russia, and the mere threat of further restrictions, are making it pricier for Russia to borrow from international markets.

The yield on the ten-year government bond is now 9%, up from 7.7%. Capital is flowing out of the country. Longer term, this "one-trick pony economy" massively dependent on energy exports will need Western know-how to diversify its economy.For now, at least, its odds of receiving this are dwindling.

Investors should also beware of the impact on European stocks. Geopolitical jitters already seem to be taking their toll on Europe' weak recovery. German investor confidence, for instance, has slid for seven months in a row. If this drags on, said Wolfgang Munchau in the FT, it could become the shock that sends Europe into deflation.

Recommended

The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?
US Economy

The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?

America’s central bank is talking surprisingly tough about tightening monetary policy. And it’s not the only one. John Stepek looks at what it all mea…
23 Sep 2021
The end of the bond bull market, and how to invest for it
Investment strategy

The end of the bond bull market, and how to invest for it

The great bond bull market looks to be over, and you probably don’t want to be holding government bonds, says Merryn Somerset Webb. Here’s what you sh…
21 Sep 2021
Kieran Heinemann: the history of shareholder capitalism
Investment strategy

Kieran Heinemann: the history of shareholder capitalism

Merryn talks to Kieran Heinemann, author of Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain, about the history of t…
17 Sep 2021
Why it pays to face up to your investment mistakes
Investment strategy

Why it pays to face up to your investment mistakes

Buying stocks can be a complicated business. But selling stocks can be tricky, too – even if you sell for the right reasons. Max King explains how to …
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021