What impact could the conflict in Ukraine have on global markets? - 13/05/22

With Russia commencing Europe's largest military conflict since World War II, what could be the global implications of such a large-scale conflict?

There is no denying that the Russian invasion of Ukraine is likely to have a massive effect on global markets. At the start of 2022 we have faced rocketing fuel prices and material shortages, as global economies look to recover lost ground through a protracted covid pandemic.

And now today we face yet another major hurdle, as Russia invokes Europe's largest military conflict since World War II, delivering yet more unease, disruption and uncertainty. As most investors would admit, these three elements are not what one would desire when trying to make money through stocks and commodities. And to make matters worse, the U.S. economy, which is the yard stick to which many economists base their current sentiment is experiencing the highest inflation rates in over four-decades.

What we can agree on at the this moment in time is we really can’t know what Russia's invasion of Ukraine ultimately means for anything from energy prices, to financial restrictions through sanctions and exchange rates. For one thing, selling into a falling market is the opposite to which any investor would hope to face. For now, many will have to hold tight until we get the first rippling effects of the conflict.

The most likely indicator will come from energy prices, with Brent crude oil futures recently topping $100 a barrel for the first time since 2014. During the 2014 Crimea conflict, prices grew to over $120 a barrel, resulting in U.S. shale oil producers burning through roughly $500 billion in capital to lift production. When calm began to return, this over production crashed global prices wiping a whole host of suppliers off the map.

Again, Inflation fears are beginning to garner fears among most money markets, with prices for both agricultural and electronic products growing significantly over the last 48 hours. Russia and Ukraine together account for about 20% of global corn exports and 25% of wheat exports, with supply chains beginning to close as their boarders become increasingly fraught with conflict.

Supply chain issues are the most likely challenge we may face in the coming months, and despite the progress made to close the gap on raw material shortages and production capacity, we now expect to see large-scale shortages return.

"Global markets will remain choppy over the next few weeks," says Kunal Sawhney, CEO of Kalkine Group, an independent equities research firm. "Thursday's attack on Ukraine has thrown up all sorts of possibilities that were unforeseen until a few weeks ago."

Property continues to offer stability

When compared to the stocks and commodities markets, in the current climate property investment will offer a much lower level of volatility. By building a strong portfolio, you can reduce much of your financial exposure whilst benefiting from the knowledge of owning a tangible asset.

The UK property market still offers investors a safe haven, through an established market, strong local currency and a short supply for the population. Prices in the North West in particular currently represent real opportunity, as the UK’s largest cities look to expand through a growing job market and increasing need for office space as much of the country returns from home working. With Liverpool and Manchester approving only a handful of residential development projects each year, now is the time to capitalise on their investment potential.

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