The geopolitical developments are very worrying and have led to markets moving lower across the board, with the Russian MICEX down 30%, the Ruble weakening to around 88/USD, and Eurozone futures indicated down between 4-5%, but NASDAQ and S&P500 also down between 2-3% at time of writing.
The largest effect of sanctions should be on the Russian market, but the Eurozone (especially Germany through its reliance on Russian energy) should be most affected by the conflict out of all the Developed Markets.
Altaf Kassam, EMEA Head of Investment Strategy & Research, State Street Global Advisors, The weakness in US markets seems the most overdone, with this move being sentiment- rather than economically-driven, where we feel like the markets have moved from ‘wait and see’ to ‘panic’ mode, and the moves there inspire us to add a little risk in a measured way.
However, we are tempering this risk addition with some tail risk hedges, notably in Long Duration US Treasuries and VIX futures, and we are retaining our overweight to commodities, which should be (and are proving to be) the one asset class which stand to benefit from this escalation of geopolitical risk.
Notably, despite the effect that the spike in energy prices should have on increasing headline inflation in an environment of already uncomfortable inflation, the market is now pricing in that Central Bank action should turn more dovish, rowing back on the number and pace of rate hikes. This is a development that we have been forecasting for a while, which adds to our view that market moves, especially in the US, are overdone.”