Russia/ Ukraine tensions lead to risk aversion with inflation

February 24, 2022

Our investment strategist Stephen Miller shares his thoughts on how tensions and conflict between Russia and Ukraine may impact markets.

Clearly, Russia / Ukraine tensions remain an intense focus for markets, leading to episodic bouts of risk aversion. This has been most manifest in struggling equity markets. Perhaps what is a little different in the current environment is that developed market sovereign bonds are not as effective as a ‘safe harbour’ asset.

For one thing, persistent inflation undermines their attractiveness as a ‘safe’ asset in the current environment and, therefore, their long-assumed quality of a good diversifier for ‘riskier’ assets in a portfolio becomes questionable.

Moreover, with the potential for a further escalation in energy prices and other commodity prices more broadly as a consequence of Russian incursions into Ukraine, inflation could well become a much larger problem.

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