DWS: Reactie op Oekraïne-crisis

February 24, 2022

By Stefan Kreuzkamp, Chief Investment Officer, DWS

We expect markets to remain very volatile for some more days until there will be clarity about the scope of Western’s sanctions and a better understanding of whether Putin will stop at the Ukrainian borders to other post-Soviet states. Central banks will reconsider their policy and remain flexible. The risks of a recession in Europe have increased, thus our strategic forecasts are under review.

Already now, we believe that Europe has to prepare for a bigger influx of refugees. In the absence of any meaningful de-escalation, Europe might also have to prepare for unprecedented cyber-attacks from Russia. While these two points could already weigh on the European economy, the biggest impact might well come from energy imports, mainly natural gas. A significant gas price shock, or even a cut in gas deliveries could easily lead to a recession in Europe (leave alone of higher inflation).

Consequences for the economy and markets

After a first state of shock, markets are waiting for more clarity about the scope of Western sanctions as well as possible counter measures by Russia. Market dynamics to the downside might intensify if certain risk limits would be triggered with institutional investors, or if retail investors start panicking. At the same time, historical experience tells us that such days are not a good time to sell either.

For Russia the biggest impact will be in the financial sector, including security trading. The West, most of all Europe, is most vulnerable when it comes to commodity imports. We believe that energy will carry a risk premium for a prolonged time. This in turn makes central bank’s reaction more difficult to predict.

While they will be tempted to stimulate the economy if needed, or at least not tighten financial conditions too fast, they might be confronted with potentially higher inflation rates for a longer period than anticipated.

Fixed Income

With Europe’s economy being much more dependent on energy supply from Russia, we would expect more pressure on European yields compared to the United States. For treasuries we expect a flattening at the longer end of the curve (10y to 30y). We have also become more cautious on European corporate bonds.

Equities

For equities as well, European assets at the core of the storm. Safe havens (US equities, Japan, Swiss market, Health Care, Consumer Staples) and oil sensitives (UK, energy sector) are likely to outperform, while cyclical sectors and Europe ex-UK are likely to face a more difficult environment. Eurozone financials could be hurt by delayed ECB hikes and disentanglement of relations with the Russian financial system.

Investors will adapt their risk premium for single stocks depending on their direct or indirect exposure to Russia and Ukraine either as an end market or as a source of supply. Russian stocks are down by more than a third, however they represent less than 0.5% of the MSCI AC World and less than 3% of the MSCI Emerging Market.