Sarasin - The invasion of Ukraine will change the world

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The Russian invasion of Ukraine is an event that will determine government, foreign and military policies for many years to come – much as 9/11 did. We set out below our preliminary investment response and the outlook for global portfolios.


On 24 February, the world woke up to the shock and horror of Russian tanks rolling into Ukraine. It is impossible to be unaffected in the face of such high potential for loss of human life – we are all people before we are investors. The invasion has, remarkably, not yet been reflected too severely in world markets so far. 


Our first conclusion is that global inflation will be stickier for longer than many had expected. If the crisis is prolonged, then stagflation is clearly a risk. 


In the longer term perhaps the right global parallel for the invasion of Ukraine is 9/11 – a single event that determined government, foreign and military policies for years to come. The implications of course are multiple today but we already see three areas that will have a particular impact on financial markets: 


  • First, the invasion of Ukraine has come at a difficult time for the global economy. Prices, in the aftermath of the pandemic, are already rising at levels not seen in 40 years.The impact on price levels could become a unique challenge for global central banks and could, if allowed to persist,raise the risk of stagflation.
  • Second, with Poland, Hungary and five other NATO members potentially sharing a border with a new, expanded Russia, the ability of the United States and NATO to defend the alliance’s eastern flank could be seriously challenged. The result will be an end to the post-cold-war ‘Peace Dividend’ and a surge in military spending by European NATO members. This could result in regular flash points along NATO borders, ongoing cyber hostility and increased risk of escalation – this means heightened geopolitical risk for an extended period.
  • Third, the fragmentation of global supply chains and cross border trade can only be further exacerbated. Already the internet, social media space and many technologies are divided between Russia and the West.For global manufacturers though, it is yet another reason to shorten supply chains, bolster domestic production facilities and sacrifice margins in return for security of supply – shareholders will inevitably suffer.


What does this mean for longer-term policy? Global inflation will be stickier for longer than many had expected. If the crisis is prolonged, then stagflation is clearly a risk.The crisis is likely to depress growth, sustain uncertainty and damage consumer and business confidence. This suggests risks for credit markets and argues for a bias to robust cash flow and quality across equity selection.The risk of further escalation and of ongoing tension at NATO’s eastern borders argues for higher cash positions,portfolio insurance where permitted and long-term strategic positions in gold – all defensive measures that may be required for some time. A rush to improve energy security across Europe will accelerate the switch to renewables, and ironically could further empower the climate agenda.


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Important information This document has been issued by Sarasin & Partners LLP which is a limited liability partnership registered in England and Wales with registered number OC329859 and is authorised and regulated by the UK Financial Conduct Authority. It has been prepared solely for information purposes and is not a solicitation, or an offer to buy or sell any security. The information on which the document is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and we make no representation or warranty, express or implied, as to their accuracy. All expressions of opinion are subject to change without notice. Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and also of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated.


Guy Monson

Chief Investment Officer

Sarasin & Partners

March 2022

Please note that these are the views of Guy Monson of Sarasin and should not be interpreted as the views of RL360.

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