Quick Thoughts: What Russia’s Power Play in Ukraine Means for Investors

We recently hosted a special edition of our “What Our Managers Think” panel discussion to address the current situation in Ukraine. Participants included Kim Catechis, Investment Strategist for the Franklin Templeton Investment Institute, Scott Glasser, Chief Investment Officer at ClearBridge Investments, Dr. Michael Hasenstab, Chief Investment Officer at Templeton Global Macro, and Dr. Andreas Billmeier, European Economist for Western Asset.

I want to personally acknowledge the loss, grief, and uncertainty being faced by so many in the current situation. In our fiduciary role, we must also fulfill our obligation to our clients. Here are key thoughts from the conversation:

  • Expect higher volatility across capital markets in the short term, primarily due to higher commodity prices and uncertainty over sanctions. Energy and food prices will likely continue to see upward pressure on supply concerns, particularly for gas and corn. Sanctions have been more expansive, more coordinated, and have come faster than expectations.
  • The impact on Europe is both economic and geopolitical. Slowing gross domestic product growth will force the European Central Bank to carefully consider its path forward on tightening monetary policy. The longer-term implications are less clear as Russia has effectively upended the past 40 years of policy in four days.
  • Structural shifts in global supply chains and infrastructure will likely occur. The shift toward renewables will likely accelerate progress on Europe’s Green New Deal. China’s willingness to increase trade with Russia will impact trade patterns in Asia.
  • The trajectory for commodities is likely a challenge for inflation, except for producers. In an environment of tighter supply, regions that are commodity exporters, such as Southeast Asia and Latin America, may provide an inflation hedge.
  • The risk to US equities has risen, but resilient sectors remain attractive. With growth expectations slowing and the possibility of reduced liquidity due to higher interest rates, selectivity is crucial. This leads to sectors that have tailwinds (energy) or stability (health care).