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How markets reacted to Putin's moves into Ukraine

Lukas Strobl  |  23 Feb 2022Text size  Decrease  Increase  |  
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Moments after Russia recognised rebel-held areas of Eastern Ukraine as independent states on Monday night, Russian military forces started pouring into the area under the banner of a ‘peacekeeping operation’.

The move answers investors’ question whether Putin’s troop buildup of recent months was merely a bluff – it wasn’t, and markets have begun to price in the reality that efforts to de-escalate the situation have failed.

Watch Morningstar CIO Dan Kemp's take on what investors need to keep in mind now.


With Brent crude oil futures spiking to a seven-year high of close to $100 a barrel, European majors including Shell (SHEL, +1.7%), BP (BP., +0.7%) and Eni (ENI, +1.2%) were at the head of the pack.

The sector’s outperformance was even clearer in the US pre-market, with Exxon (XOM, +0.8%), ConocoPhillips (COP, +2.6%) and Chevron (CVX, +1.7%) riding the crude price rally. This is in line with Morningstar strategist Allen Good’s prediction in late January that U.S. energy majors stronger focus on crude oil makes them a more direct bet on rising geopolitical risk premiums.

A return to armed conflict in Europe is also raising the prospect of increased defence spending in the West. "The heightened threat environment is likely to put upward pressure on the defense spending outlook for NATO members," Berenberg analysts led by Ross Law wrote in a note last week.

The threat of pricier raw materials as a result of reduced Russian supplies is tempering some of the tailwind for defense stocks; still, Tuesday’s outperformers included all European defense majors. In its note, Berenberg highlighted BAE Systems (BA., +0.4%), Airbus (AIR, +1.3%) and Rheinmetall (RHM, +1.9%) as particularly well-positioned to benefit from conflict-driven demand.


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In the hours after Putin’s announcement, the ruble weakened against the dollar by 3%, the most since early 2020. Russia’s MOEX stock benchmark continued its months-long slide on Tuesday morning, falling as much as 11% and extending year-to-date losses to 28% with economically-sensitive sectors such as banking, mining and construction declining the most.

The jitters have been felt in Western Europe as well, with the S&P 350 Europe Index retreating 2% in the morning, though it pared losses as investors stepped back to see how far Western sanctions actually go.

The region’s biggest losers included energy firms exposed to the Gazprom-led Nord Stream 2 pipeline project, including Uniper (UN01, -3.4% intraday) and Fortum (FORTUM, -4.2%) after Germany’s move to halt the pipeline’s certification.

European banks exposed to Russia also featured among the day’s worst performers. They included Austria’s Raiffeisen (RBI, -7%) and Erste Bank (EBS, -3.5%), while SocGen’s (GLE, -0.7%) Russian exposure was cushioned by media reports that its Russian unit Rosbank positioned it to help other lenders with Russian transactions.

Lingering doubt

It remains unclear whether Russia’s move into two secessionist areas was Putin’s objective, or just a precursor to a much larger campaign against Ukraine. The conflict’s impact on markets heavily depends on the severity of Western economic sanctions, which were still taking shape on Tuesday.

"We doubt the full scale of sanctions threatened by the West will be rolled out," UBS CIO Mark Haefele wrote in a note after the latest developments. "This will allow the international community to keep the door open to diplomatic efforts, and to minimise collateral damage to the European and global economy."

is the editorial manager for EMEA at Morningstar.

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