“We are in the unusual position of global headlines and politicians warning of the risk of a major war, and yet markets…remain mostly unconcerned,” says Michael Every of Rabobank. The massing of more than 100,000 Russian troops on Ukraine’s borders has not gone unnoticed – but the consequences so far have been very limited.
True, Russian assets have sold off as foreign investors anticipate more sanctions, to the point where some Russian company valuations have started to “look frankly absurd”, say Robert Armstrong and Ethan Wu in the Financial Times. Gazprom, which is benefiting from high oil prices, trades on a price/earnings ratio of just three and a 17% dividend yield for the year ahead, for example. Yet in other respects, investors don’t seem to be positioning for conflict, says Katie Martin in the same paper. If they were, you would expect them to rush into classic safe-havens such as the Swiss franc and Japanese yen, US government bonds and gold. Instead, January has seen US bonds sell off and the franc dip against the dollar. The “yen is flat” and “gold is a snooze fest”.
Western politicians are suggesting that a Russian invasion of Ukraine could be just weeks away, but investors seem inclined to agree with the Ukrainian government, which has been downplaying the threat. “The belief in Kyiv is that Vladimir Putin’s goal is the long-term destabilisation of Ukraine, and that the Russian leader may have other objectives than invasion,” say Dan Sabbagh and Luke Harding in The Guardian. These include forcing the West to accede to its demands, such as a block on Ukraine and Georgia joining Nato.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Chaos in commodities
If these assumptions are wrong, there will be “huge market implications”, says Every – including a flight to safe-haven assets and turmoil in many commodities. Rabobank analysts reckon that even a limited war could send oil up to $125 a barrel from about $90 a barrel now. In the most extreme (and unlikely) scenario, where US sanctions cut Russia off entirely from supplying world energy markets, oil could hit $175 a barrel.
Russia is also a significant metals producer – it accounts for about half of global nickel exports and a quarter of the aluminium market, according to Rabobank. “Any disruption to flows of… metals, including palladium, nickel and aluminium, could propel prices sharply higher,” says Alexander Nicholson on Bloomberg. For a small taste of what might happen, note that in 2018 the US imposed sanctions on aluminium giant Rusal, only to learn that “cutting off supplies from Russia’s commodities producers” can wreak “havoc on manufacturing supply chains”.
Finally, Russia is the world’s biggest wheat exporter, with Ukraine in fifth place. The countries’ food exports mostly pass through the Black Sea, close to the potential conflict. “About half of all wheat consumed in Lebanon in 2020 came from Ukraine,” says Alex Smith in Foreign Policy. Egypt, Malaysia, Indonesia and Bangladesh are also big buyers of Ukrainian wheat. A decade on from the Arab Spring, which was triggered by rising food prices, war in Ukraine could send another wave of political turmoil “across Africa and Asia”.
-
House prices are falling in London but how does it compare to the rest of the UK?Advice The capital remains the most expensive part of the UK to buy a property, but it isn’t being as badly hit by the housing market slump. Where are London house prices heading?
-
Will a Santa Rally provide festive cheer for investors this year?
News Equities often get a seasonal boost during December - will there be a Santa Rally in 2023?
-
Crypto is “Monopoly money”
FTX won't be the last crypto scandal, because cryptocurrencies mirror the worst aspects of the finance industry.
-
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
-
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
-
Are corporate bonds a good bet?
Corporate bonds pay a slightly higher yield than governments, but spreads aren’t generous by past standards.
-
SoftBank’s shares slump on quarterly loss
Japanese investment group SoftBank’s technology funds have struggled, not least because of an investment in WeWork.
-
M&S shares shift from frumpy to fabulous as pre-tax profits are up by 56%
M&S is performing strongly and has announced it will pay a dividend for the first time since the pandemic.
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
-
Three defence stocks set to flourish in an era of instability
A professional investor tells MoneyWeek where he’d put his money. Tom Bailey highlights three defence stocks that look promising.
