IN FOCUS6-8 min read

Russia and Ukraine: uncertainty ahead

Markets have responded with alarm to Russia’s invasion of Ukraine. We anticipate further volatility.



Caspar Rock
Chief Investment Officer

The situation in Ukraine has taken a turn for the worse with potentially grave humanitarian consequences.

Five days after Russia's invasion, fighting continues. Ukraine's resistance and the response from the country's Western allies have both been stronger than expected. Over the weekend, the US, UK and EU agreed to unprecedented sanctions on Russia's central bank and banking system. Germany has also surprised the international community with its announcement of a 100 billion euro increase in defence spending.            

Market responses

Russia's invasion prompted a sharp reaction in markets. Equities have experienced high levels of volatility. Oil prices have risen above $100 for the first time since 2014 as investors worry about disruption to energy supplies. 

Recent developments give rise to a number of economic concerns. Firstly, while the Russian economy is small, measures against the Russian banking system - including its central bank - raise the risk of financial contagion, especially in Europe. 

Secondly, the risk of "stagflation" - a period of high inflation and falling or negative growth - has risen. The possibility of restrictions on Russian commodity exports has prompted sharp rises in the price of many raw materials, not just oil. This will mean inflation continues to move higher over the coming months. At the same time, growth is likely to suffer as higher food and energy prices erode disposable income and consumers become more cautious. This will complicate central banks’ efforts to fight inflation and markets are likely to remain volatile as investors grapple with the rapidly evolving macro-economic outlook.  

Portfolio positioning

Heading into recent events, we had a very slight “overweight” position in equities compared to our long-term target allocation. However, we have also been adding to diversifying assets in recent weeks – including commodities and absolute return funds – helping to protect portfolios from recent volatility. We do have limited exposure to Russian and Ukrainian assets through some of our emerging market funds - however this is minimal at a portfolio level (approximately 0.5% of our balanced strategy).

We continually review portfolios and have done so following the latest developments. We are satisfied our positioning remains appropriate.

Over the coming days and weeks, volatility could present opportunities to add to portfolios. We continue to see attractive opportunities in select areas of the equity markets, as well as alternative assets. However, we would advocate adding across asset classes, rather than solely to equities. This helps ensure portfolios remain appropriately diversified and have sufficient “defensive ballast” in the event of further stock market falls.

Geopolitical crises: a look back in history 

As the data below suggests, markets have tended to recover quickly from wars and other geopolitical shocks – especially when the US economy is not in recession. We do not envisage a recession in the US over the next year. 

S&P500 performance around select geopolitical / military events


Geopolitical / military events

1 month later

3 months later

6 months later

12 months later

December 1941

Pearl Harbour





October 1956

Suez Canal crisis





October 1962

Cuban missile crisis





October 1973

Arab oil embargo





November 1979

Iranian hostage crisis





December 1979

USSR in Afghanistan





August 1990

Iraq invades Kuwait





January 1991

Gulf War





August 1991

Gorbachev coup





February 1993

World Trade Centre bombing





September 2001






March 2003

Iraq war












% Positive





Source: Truist IAG, Factset. Bold rows represent down markets where the economy was in recession at some point during the measurement period.

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Caspar Rock
Chief Investment Officer