Whenever there is political unrest in the world, investments are affected. After Duma authorized the Russian intervention in Ukraine, the FTSE 100 dropped by 1.6 percent. At the beginning of this week, all equity markets were showing signs of change, with investors moving to lower risk holidays, including gold and government bonds. The Russian exchange (MICEX) experienced the greatest dip of 12.5 percent but the European markets dependent on Russian gas were also affected. The German DAX has suffered a 3 percent drop and the UK, less dependent on Russian gas, seems to have recovered from the fall earlier in the week. However, economists worry that the impact of the drop may be prolonged.
Politics and Market Volatility
Political upheaval is by its very nature unstable, so it is very difficult to predict how long it will last for and what the outcome will be for investors. Some analysts think that the main crisis has now passed and that investors will view the stand-off as a local issue. If this is the case, market impact will be very short term. Other economists believe that the potential for further escalations in the violence is very much present, and that the increase in gas prices for the Ukraine from Russian company Gazprom is a clear indication that this crisis is not over. The current turmoil has affected equities, bonds and commodities, and although some buying opportunities have been created, the serious nature of the economic and energy risks attached to this mean that investors should approach with caution. If you’re considering making any new investments on the back of the Ukraine-Russia stand-off, it’s very important to receive professional advice from a specialist company like Sanlam Private Investments. The threat of escalating violence must be considered by investors hoping to buy at this time.
The impact on gold, oil, grain and natural gas has been marked throughout the Ukraine crisis. The West’s energy supply is described as ‘dependent’ on Russia and will be further affected because it passes through the Ukraine. The Ukraine’s position as a major grain supplier has seen prices of wheat and corn increase. Unsurprisingly, gold is up as it is always viewed as a safe bet for investors during times of uncertainty. It has been predicted that the crisis will also result in a stronger US dollar. A JPMorgan market strategist has commented on commodity prices, and dubbed them at a ‘six month high’. Analysts are describing the spike in prices as an illustration of why smart investors should always have some commodities as part of their portfolio. The emerging markets will definitely bear the brunt of the impact of the crisis, but this will mostly be confined to Russia and the Ukraine. It’s very important to remember that if you’re considering investing in the emerging markets, political volatility is an unavoidable part of this experience.