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

Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
The MoneyWeek Podcast: how to not lose money to inflation and financial repression
Investment strategy

The MoneyWeek Podcast: how to not lose money to inflation and financial repression

Merryn talks to Peter Spiller of the Capital Gearing Trust about how he navigated the last extraordinary year; what he's buying now; and how he plans …
16 Apr 2021
UK mid-cap stocks look forward to life after lockdown
UK stockmarkets

UK mid-cap stocks look forward to life after lockdown

The FTSE 250 hit an all-time high at the end of last week, as investors look to a post-lockdown recovery.
16 Apr 2021
Why you should expect another stockmarket crash
Stockmarkets

Why you should expect another stockmarket crash

Many fear inflation, but a deflationary debt collapse is a more likely scenario in the near term, says Tim Lee
16 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Properties for sale for around £400,000
Houses for sale

Properties for sale for around £400,000

From a converted church in Banffshire with views towards the Cairngorms National Park, to a period property in the Georgian market town of Beverley, e…
2 Apr 2021