Russia and Ukraine Conflict: Its Impact on Markets and Investors

The markets became volatile after the news of the war between Russia and Ukraine. Investors have become very anxious about the geopolitical conflicts happening between Ukraine and Russia and how it affects the market. The conflict has changed the value of mutual funds and exchange-traded funds, even for people who have never invested directly in oil, gas, wheat, or other commodities. From Thursday (February 24), many sectoral indices ended in red, especially with pockets like oil and gas. 

Impact on commodities

We know that Russia is a major distributor of gas and the world’s top wheat exporter, while Ukraine also is a major wheat producer. The two countries account for almost a quarter of total international wheat exports. As a result, prices of commodities like gas, oil, and wheat have risen as traders become concerned about the possibility of disruption to shipments. So, the impact on the world is expected to be high enough.

A senior oil market analyst, Louise Dickson, stated that the fragile situation in Ukraine and the financial and energy sanctions against Russia will fuel the energy crisis and increase the oil price to above $100 per barrel in the short term; or even higher if the conflicts escalate further.

Furthermore, oil prices rose as investors assessed the risk of Russia interfering with the flow of energy supplies. On Monday (February 28), the price of Brent crude futures was up 3.71% or $101.60 per barrel. Since 1024, Brent crude has surpassed $100 per barrel for the first time.

Meanwhile, the West Texas Intermediate (WTI) crude futures were up to $3.08 or 3.22%, to $98.80 per barrel. The previous day, the contract reached a high of $99.10 per barrel, more than 4% higher.

Impact of Russia-Ukraine war on the Russian market

It has been a brutal week for Moscow’s stock market because it was hit by one of the biggest collapses in financial history due to the sanctions by the EU and USA. The dollar-based RTS index shed 38% on Thursday, while the rouble declined to a record low against the dollar.

On Monday, energy giant BP and Shell, global bank HSBC, and the world’s largest aircraft leasing firm AerCap plan to leave Russia as western sanctions tightened on Moscow for its invasion of Ukraine.

The west has started to punish Russia with several sanctions; including the closure of airspace to Russian aircraft, the exclusion of some Russian banks from the global financial network SWIFT, and restrictions on Moscow’s ability to use its $630 billion in foreign reserves. Furthermore, Russia’s economy was already in free fall. The rouble fell to a record low while the central bank doubled its key interest rate to 20% and closed stock and derivative markets.

While the Moscow stock exchange was closed on Monday the $1.3 billion VanEck Russia ETF (RSX) and the $350 million iShares MSCI Russia Capped ETF (ERUS) both fell nearly 40% from February 16 to February 25––and fell another 30% and 28% on Monday, respectively. This would reflect the expected drop in Russian equities and the ruble’s about 23% against the dollar. The VanEck fund has now reached its lowest level since March 2009, during the peak of the crisis.

Impact of Russia-Ukraine war on the USA market

The US stocks stumbled from Tuesday, with the Dow Jones Industrial Average DJIA, +2.51% representing a sharp decline of 1.5% on Thursday afternoon. The S&P 500 fell 1% into correction territory — a drop of at least 10% from the most recent high.

Major investors, including hedge fund Man Group (EMG.L) and British asset manager Abrdn (ABDN.L), announced on Tuesday (March 1) that they were reducing their exposure to Russia in the aftermath of the country’s invasion of Ukraine.

The Russian invasion of Ukraine jolted stock markets that were already rattled by the crisis. The day prior to the attack, the S&P 500 had already dropped by nearly 12% since the beginning of the year. The Nasdaq had fallen by 17% since January before the attack. When the invasion began, the Moscow Exchange halted trading. The Moex index of Russia’s leading companies fell by 45% before recovering some of its losses when the trading resumed.

In the US, Veon (VEON), a Nasdaq-listed telecommunication provider (whose revenue was generated from Russia), fell by 36% on Monday. Moreover, on Monday, Nasdaq halted trading in giant tech Yandex (YNDX) after the shares fell more than 20% in premarket activities. Yandex stock has already dropped by 58% in the previous week. It falls further by nearly 7% on Friday and has lost almost 70% year to date due to volatility.

What should investors do now?

Then, what should investors do? The S&P 500 entered a correction earlier this week. Bitcoin has been trading at lows, with some analysts predicting a drop to $30,000, defying the notion of cryptocurrency as a safe haven asset. Gold, a popular refuge for traders during the crisis, has risen to its highest level since June.

According to Tom Essaye, a former Merril Lynce trader, although the Russia-Ukraine conflict will dominate near-term headlines, it will not determine the medium and long-term direction.

Now, investors must be patient. Keep an eye out, but don’t panic. The market is very volatile. Usually, situations like geopolitics wars may have a short-term influence on the stock markets. However, some investors believe it can be potential for another “Cold War.” So, it is better to wait for some time instead of selling your shares in a panic or buying them in a hurry. Sticking to large caps and index stocks would be the best option to observe the ongoing volatility.

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