Asset Management

Markets On Edge Over Ukraine, Energy – Latest Wealth Management Reactions

Editorial Staff, 10 March 2022

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We continue to set out the latest thinking of wealth and asset managers about unfolding events in Ukraine and how surging energy prices and supply disruptions, for example, affect asset allocation.

As wealth managers and asset allocators wrestle with protecting, let alone try to grow, clients’ wealth as markets are hit by Russia’s invasion of Ukraine, here is a collection of the latest views from firms around the world. 

Benjamin Melman, global chief investment officer, asset management, Edmond de Rothschild
It is often said that geopolitical crises offer good entry points for investors, but it is often also because they have been accompanied by a “capitulation” of investors. However, this has not been the case until now. Furthermore, at this stage of the conflict, visibility is low and many scenarios are possible. It is still too early to know how much European and global growth and inflation will be affected, but we are undeniably moving towards a deterioration.

While the European Central Bank suggests that it is ready to postpone certain elements of its  monetary policy tightening until geopolitical uncertainty declines, the Federal Reserve is still far from sending such a message. In his latest statement to the Americans, the President focused on two subjects: Ukraine and inflation, showing clearly where the country's priorities are, priorities again reconfirmed by Jerome Powell. Historically, for the Federal Reserve to change its course in terms of monetary policy, there needs to be a very significant tightening of financial conditions. This still has not happened. In addition, the Fed is facing the management of an inflationary problem that is more threatening than in Europe, a first in decades.

We chose to adopt a more defensive positioning in our allocation by reducing the weight of equities through our exposure to Europe. In the short term, geopolitical visibility is far too low to take strong positions and, beyond the short term, the uncertainty related to quantitative tightening leads us to believe that this more defensive position could be a little more sustainable.

(The firm has cut its equity weightings; it says geopolitical woes are severe enough to take strong positions, and it is prepared to be more tactical in changing course.)

Dr Felix Brill, chief investment officer, VP Bank
First a global pandemic, now a war. Both challenges overshadow two other issues preoccupying capital markets. On the one hand, a strategic consolidation phase following the dominant digital growth trend, on the other hand, the tightening of monetary policy.  

The individual related issues such as financing costs, supply chain disruptions, new security thinking (including crypto-assets and data security) are feeding each other to some extent. It is likely that this crisis complex has not yet been processed at the current fundamental valuations, neither with regard to the consolidating technology sector and possible effects on the cost of capital, nor with regard to the risk budget of strategic investors.

David Chao, global market strategist, Asia-Pacific (ex-Japan), Invesco
The risks of a Fed policy mistake have become more pronounced: tightening too quickly that causes a hard landing or on the flipside, not tightening enough that results in inflation expectations to become unmoored. There couldn’t be a more appropriate time than now for investors to remain well-diversified across assets to weather this storm.

In light of the continued geopolitical uncertainties, it makes sense to be overweight in natural resources and those countries that are the biggest commodity exporters in energy, agriculture and metals. As a diversifier, investors may also think about alternatives, such as gold, real estate, market neutral, long-short strategies.

Harmen Overdijk, chief investment officer, Leo Wealth
The short-term will remain uncertain and a fear-driven sell-off is a possibility. However, that would create buying opportunities. Looking back in history, wars have often been good for corporate profitability, especially in America.

On a six-12 month time horizon, our expectation that monetary policy will tighten at a less aggressive pace than investors expect suggests that the earnings risk to global stocks is not substantial, underscoring that a meaningful contraction in equity multiples would possibly be required for stocks to register negative 12-month returns from current levels.

Despite the uncertainty around the Ukraine conflict, we expect the Fed to proceed with a 25 basis point rate hike at its March meeting. The risks and uncertainty surrounding the Ukraine crisis reduce the likelihood of a steeper 50 basis point rate hike. Beyond this near-term outlook, inflationary dynamics will be relevant when it comes to how much the Fed will tighten. A scenario in which rising energy prices keep inflation higher may cause the Fed to accelerate the pace of rate hikes later this year.

Gurpreet Gill, macro strategist, global fixed income, Goldman Sachs Asset Management
Good growth, a healthy labour market, rising inflation, and prospects for looser fiscal policy, as European governments seek to address the cost-of-living crisis, mean that we have brought forward our expectations for a rate hike to mid-2023. We also expect quantitative easing (QE) to end later this year. However, given uncertainties on the outlook, including potential fiscal support, we think that the ECB will delay an announcement on a taper of its QE programme this week. In addition, we do not expect the Governing Council to set a target date for the end of QE yet. This preserves some flexibility for the central bank to respond to changing price and growth dynamics amid a volatile investment environment, with the impact of the Ukraine crisis now at the forefront of policymakers’ minds.

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