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How is the Russian invasion of Ukraine affecting investors’ stock market assets?
By Keith Littlewood, Blacktower International Financial Advisor
Investors have had a lot thrown at them in recent months, with the emergence of the Omicron variant, rising inflation worries and the prospect of higher interest rates. To these concerns, we can now add the Russian invasion of Ukraine which, aside from the tragic human suffering, poses geopolitical dangers for the West and threatens to make our inflation problems worse.
Clearly, it is a fast-moving situation which could change very quickly but, at the time of writing, the West has so far responded by imposing a limited number of targeted sanctions and Germany has halted the certification process for Nord Stream 2, the new pipeline intended to carry Russian gas to European consumers. However, much more punitive sanctions are likely to be announced in the coming days and NATO will probably reinforce its eastern flank with an increased military presence in countries like Romania, Poland and the Baltic States.
Market Response to the Russia-Ukraine conflict
In terms of the market response, we have seen sharp falls in global stock markets while commodity prices have risen significantly, especially oil and gas. Safe havens are not surprisingly in demand, with gold and government bond prices rising – especially inflation-linked.
The question now is how far does Putin intend to go with this military action? He may content himself with increasing the territory held by the separatists in Eastern Ukraine while degrading the Ukrainian military from the air. Or he could decide to try and occupy most or all of Ukraine, risking a bloody and drawn-out conflict which increases the chances of a confrontation with NATO. Early indications suggest that, at the least, he wants to effect regime change in Kyiv and bring the country back into the Russian orbit.
Market Volatility
Markets have been volatile in the build-up to the crisis with geopolitical tensions exacerbating investor concern about the prospect of higher interest rates. Central banks look set to end years of quantitative easing and ultra-low rates as they attempt to get a grip on rising inflation, taking away what has been an important support for markets. There had been some light at the end of the tunnel, with economists forecasting that the peak in inflation was around the corner as the impact of the pandemic wanes. However, this peak could get pushed back if oil, gas and other commodity prices continue to rise on the back of the Ukraine crisis. Clearly, one of the big risks would be an interruption in the Russian gas supply to Europe.
Volatility is likely to continue in the coming days, though history does give us some comfort that markets should eventually shrug off these geopolitical concerns and recover. During the Crimean annexation of 2014, investors experienced some volatility, but global equities soon resumed their upward trend as the crisis subsided.
Going back further, global markets had a difficult time in the run up to the US-led invasion of Iraq but bottomed about a week before the troops went in and spent the rest of the year going up steadily. And even further back, there was a big drop in bourses during the Iraqi invasion of Kuwait in August 1990 when the oil price doubled but markets soon stabilised afterwards.
Clearly, all geopolitical events are different and this one is particularly serious, but Blacktower Financial Management is confident that markets will bounce-back once tensions subside. In terms of what we are doing in client portfolios, we continue to take a long-term approach and favour a broad mix of internationally diversified equities alongside lower risk alternatives and fixed income. We have been gradually rotating into sectors that should benefit from higher interest rates such as banks, as well as energy companies. However, we continue to favour longer-term growth companies with strong franchises and will look to take advantage of any prolonged volatility. While we are still cautious on bonds our fixed income holdings remain focussed on liquidity, security and providing diversification from equities. Rest assured that we are monitoring developments closely.
If you would like to contact us to arrange a complimentary no obligation consultation the local Blacktower office address is: 120 Avenida Dr. Artero Guirao 2C. San Pedro Del Pinatar, 30740, Murcia, Spain. Our office suite is easy to find on the main N332 through road of San Pedro del Pinatar with easy parking.
If you want more information or wish to make an appointment to discuss your own situation then call 657684094 or email keith.littlewood@blacktowerfm.com
Disclaimer: This communication is based on our understanding of current legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity
Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission. Licence 03647. Blacktower Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK and is registered with both the DGS and CNMV in Spain. Blacktower Insurance Agents and Advisors Limited is authorised and regulated by the Cyprus Insurance Companies Control Service (ICCS) under Licence number 5101. Regulation is limited to Insurance Mediation activities within the European Economic Area. Blacktower Financial Management (Cyprus) Limited is licensed and regulated by the Cyprus Securities &Exchange Commission (“CySEC”) with Licence number 386/20 for the investment services of InvestmentAdvice and Receipt & Transmission.
Financial Advice Issues for Expats in Spain
I have been a Qualified Financial Adviser for almost 35 years now. 25 years in the UK for major institutions such as Natwest, RBS and Royal London. I have been in Spain giving expats financial advice now for 10 years and it is quite remarkable the different approaches as well as advice that are required for an expat now living in Spain. Blacktower is a company that has specialised in providing the best solutions for its clients living outside the UK for 30 years also.
The currency issue is always high on the agenda and a discussion for the long-term future has to be taken onto account. Questions like What will happen if one partner dies? Will the other remain in Spain? What about other family members? What Inheritance tax provisions do you have in place? The list goes on and on.
Existing portfolios and investments that were the mainstay of portfolios in the UK may now be obsolete. An example of this is quite often tax efficient products in the UK like ISA’s and previously held TESSA’s: PEP’s actually have low growth rates and provide no tax advantage to a Spanish fiscal resident.
Existing pension holdings either paid by the state or private pensions built up through working lifetimes are topics that have to be covered. Many expats have lots of small pensions from many ex employers and can be confused by the communications and administration in dealing with them. At Blacktower we specialise in advising on how to consolidate and bring all these pensions together in one place.
Bank accounts and investments in Spain always bring up lots of questions too. Quite often the small print associated with financial products in Spain is in Spanish this can make it very difficult even if you have a good grasp of the language. Understanding Jargon in English is sometime difficult enough. I provide clear easy to understand letters and documents in English so that you fully understand any terms and conditions before making a decision.
Advice on tax efficiency is just as important and offering good returns. There are products available exclusively for Spanish expats that can provide invaluable benefits. Having a good base knowledge of the tax implications both now and in the future is an essential ingredient to making a sound decision.
Click for more information about Keith Littlewood.
The above information was correct at the time of preparation and does not constitute investment advice and you should seek advice from a professional adviser before embarking on any financial planning activity.
This communication is for information purposes only and it does not constitute advice or a recommendation. The value of investments can go up as well as down, and investors may not get back the full amount invested. The Blacktower group of companies operates across multiple jurisdictions, each authorized under its respective regulatory license. For further information, please refer to the relevant regulatory page.
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