Russia-Ukraine: a lot of bad news already priced in, but the outlook is deteriorating

Friday 11 March 2022

Investment Talks

   

Russia-Ukraine: a lot of bad news already priced in, but the outlook is deteriorating

March 2022 | After several rounds of negotiations, the conversation on the war front in the Ukraine has shifted towards Russian demands regarding the breakaway regions of Donbass and Crimea. However, a quick resolution to the conflict is highly uncertain at this stage. Against this backdrop, market attention is turning to an assessment of the macro outlook. 

01 |  We have downgraded our global growth forecasts as the global economy will be impacted by higher energy and food prices, both on the demand and production side. Europe is the area where stagflationary risks are highest and a temporary recession will be possible in 2022.

02 | We keep a mildly-cautious risk allocation, with a focus on inflation resilience in stock and credit selection. Duration is played actively within a short duration stance, as we recognise that higher inflation will drive yields higher in the mid-term but short-term dynamics could provide tactical opportunities. 

03 | A lower growth environment and prices trending higher will likely pressure margins and could potentially lead to an earnings recession. While we think the US can avoid this, Europe is more at risk. In our view, current market corrections incorporate most of the bad news, but some further retracements are possible.

Russia-Ukraine: Outlook Deteriorating

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