The Russian invasion of Ukraine, rising inflation and the legacy of the coronavirus pandemic are causing great uncertainty on the global markets. In this article, John Townsend analyzes the current developments, their impact on the global economy and possible strategies for investors – with a sober look at geopolitical risks, market psychology and long-term prospects.
The Russian invasion of Ukraine has stirred up new fears on the markets following the Covid crisis. Inexperienced investors tend to sell in panic – especially in leveraged positions. In contrast, institutional investors are seeking refuge in US government bonds and blue chip equities.
While Western politicians are striving for unity, there are voices in some countries calling for territorial concessions from Ukraine. This would reward Russia for its aggression – a dangerous precedent.
The Russian economy is struggling and is reacting with aggressive rhetoric – including the threat of tactical nuclear weapons. These statements are primarily aimed at a domestic audience that has little access to alternative information. At the same time, Russia is using its energy exports as political leverage: the shutdown of Nord Stream 1 is causing prices to rise massively. A lasting solution requires real diversification – not only technically, but also politically. Townsend even suggests shutting down the controversial Nord Stream pipelines completely as a geopolitical bargaining chip.
The stock markets peaked in December 2021 – since then, uncertainty and volatility have dominated. A low point was probably reached in September 2022, but a quick recovery like 2020 is unlikely. Rising energy prices are driving inflation, while central banks are reversing their monetary policy measures: key interest rates are rising and bond purchases are being reduced.
The USA could already be in recession, with Europe likely to follow suit by the end of the year. Nevertheless, some economic signals remain positive – particularly the employment figures in the US. The economic recovery is likely to result in a mild recession, with limited impact on long-term assets.
Real estate markets are also reacting: falling prices and stricter financing conditions are making buyers hesitant. Investors should now look specifically for undervalued quality stocks. An experienced fund manager with a good team can make a decisive difference in this market phase.
In China, the zero Covid strategy is slowing down growth. In 2022, the growth rate will fall to a 40-year low of an estimated 3.3%. Nevertheless, China remains an interesting investment destination, partly due to its integration with other Asian markets.
The markets go through emotional phases – as in the model of the five stages of grief. The negotiation phase in summer 2022 was followed by disillusionment: key interest rates rose much faster than hoped. Investors are now caught between depression and acceptance.
Technology stocks in particular, previously the stars of the MSCI World Index, have been overtaken by reality. The formerly hyped FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) were replaced by MANTA (Microsoft, Amazon, Nvidia, Tesla, Alphabet). The bubble burst – as it once did during the Dutch tulip mania – and forced overextended investors to sell. The companies are not worthless, but their previous valuations were exaggerated.
Investors should not capitulate now. Those who remain invested will benefit from the market recovery in the long term. The boom times are over, but competent fund managers with experience can create value even in difficult phases. Diversification is now more important than ever – as is caution towards overheated trends such as cryptocurrencies.
The motto remains: stay invested, spread risks widely and don’t bet everything on one horse.
