How the Ukrainians and the Western powers will react remains the major unknown for those trying to assess the tragic situation that is unfolding.
We’re all shocked and saddened by events in Ukraine. Although we are talking here about the impact on markets, we acknowledge first and foremost that this is a human crisis with potentially awful consequences for millions of people.
However, at times like this our clients expect us to stay level headed, which is what we’re trying to do in assessing the market implications.
Previous crises have shown us that what markets hate most is uncertainty. The worst phase for the market is when uncertainty is at its peak.
Now Russia has invaded Ukraine we have moved a step closer to peak uncertainty and into the realm of actual bad news. This is easier for investors to price, even if the consequences are negative.
The one major source of uncertainty is how the Ukrainians and the Western powers will react. The assumption is that the response will be ever tougher sanctions. But there is also the question of whether at some point the West will be willing to intervene militarily.
So I don't think we have reached "peak uncertainty" just yet. At this stage I wouldn't advocate attempting to time the bottom of the market - let's at least get through the weekend first.
All the while we're assessing the consequences, stock by stock, bond by bond and have the flexibility to respond if and when buying opportunities appear.
In terms of regions, some people are treating this as an emerging markets issue, but it is broader than that. Europe in particular is arguably the most exposed to the impact of what is going on.
Looking beyond the impact of geopolitical risk on risk premiums, the main economic transmission mechanism is via energy prices. This poses particular challenges for Europe given its reliance on Russian energy.
This has detrimental implications for growth and complicates the picture for the European Central Bank.