An investor outlook in the face of a Russia-Ukraine war


16 Feb 2022

What would a Russia-Ukraine war mean for investors? Andrew Holt examines the likely scenarios


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What would a Russia-Ukraine war mean for investors? Andrew Holt examines the likely scenarios


“You may not be interested in war, but war is interested in you,” Trotsky is supposed to have said and investors may do well to heed the warning of a possible conflict between Russia and Ukraine.

Russian energy and financial service companies are anticipated to benefit – with big hitting blue-chip organisations like Russian national banking and financial services company Sberbank, state-owned energy group Gazprom and multi-national Lukoil likely to benefit from a potential war.

As a result, the situation, according to one analyst, is likely to propel big Russian energy companies to another level, meaning they “should be one of the best-performing equity markets in 2022”, he said. This is a big claim, but it is easy to see its appeal given the strong position these companies hold within the Russian system, and one that effectively amplifies in a war scenario.

Gazprom received a boost of a different kind in early February when it was announced that former German chancellor Gerhard Schröder is to join the board of the energy giant.

On the other side, Ukrainian sovereign bonds are factoring in risk and now yield 9.6%. This is impressive, especially as a 10-year US government bond offers less than 2%.

That said, there could well be downsides to any war scenario. Moscow’s Moex stock index has plummeted by 20%, according to Morningstar. Although for investors interested in the medium to longer term, this could offer value opportunities.

Russia debt could become less appealing, given the geopolitical reaction likely to follow any war or invasion scenario.

There is also a possibility that the US and European Union (EU) may want to hurt the Russian banking system and cut Moscow from global finance if war results – although this could have an impact both ways, and was one reason why it was not used following the annexation of Crimea in 2014.

Russia may hold the upper hand here. About $60bn (£44bn) is owed to EU banks by Russian organisations and individuals – nearly, it should be noted, four times more than the amount they owe to US banks – according to the Bank for International Settlements. 

In addition, the EU is the largest investor in Russia, standing at $6bn (£4bn), according to fDi Markets. These are significant numbers by any measurement.

So, it is imperative for the EU to avoid war. Hence why France’s president, Emmanuel Macron, made his recent move to negotiate a peace settlement on behalf of the EU. It appears that with it being election year in France, Macron wants some of Putin’s strongman image to rub off on him.

This EU position was reinforced by Christine Lagarde, president of the European Central Bank, who warned that if the situation deteriorates it could lead to “increased costs throughout the whole structure of prices” in the eurozone. “Peace is a lot better than any kind of war from an economic point of view,” she said.

Any war situation could be bad news for Ukraine in that investment, which has been flowing into the country, is likely to slow or even stop. “There was foreign investment happening. Now it may contract,” said one concerned observer. 

Black swan

Understandably, some investors are hesitant of the whole situation.

One investor used Nassim Nicholas Taleb’s idea of a ‘black swan’ event – a rare and unpredictable outlier event – to describe the Russian-Ukraine situation, given it is, he said, “typically a black swan event that is difficult to prepare for.

“But, if it occurs, then there can be some Armageddon-type consequences,” he warned.


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