Ukraine impact on financial markets

Global stockmarkets are down around 10% since the beginning of 2022, primarily due to the heightened risks presented by the geopolitical situation in Ukraine.

The invasion of Ukraine is a human tragedy, and has evoked strong responses from around the world. We all hope economic sanctions help to resolve this situation.

Some clients have asked if a link exists between current events and financial market performance.

Vanguard has recently completed a review of the major geopolitical events of the past 60 years.  Their research found that while equity markets often reacted negatively to the initial news, geopolitical sell-offs were typically short-lived and returns over the following 6 and 12 month periods were largely in line with long-term averages. 

As shown below, on average, stocks returned 5% in the 6 months following the event, and 9% over 12 months:

Source: Vanguard

Even with that historical information at hand, it is clear that a new dimension of risk has entered the financial markets with Russia's attack on Ukraine. Markets have always been resilient in the face of various risks – we can revisit the major stockmarket falls since WW2 and how quickly markets rebounded: https://loricapartners.com.au/insights/2020/3/17/covid-19-update-no3-s36w9

Some clients have asked how much exposure to Russia is in their portfolio.

Normally the only exposure to Russia in Lorica Partners’ portfolios is via holdings in Emerging Markets equity funds.  We primarily use Dimensional and Vanguard for this exposure.

Dimensional has confirmed they have exited all Russian holdings.  In recent days, many of the world’s major global indices have decided to remove Russia. This has enabled Vanguard to remove any exposure to Russia from its Emerging Markets Index Fund, as Russia no longer appears in the MSCI Emerging Markets Index.

Author: Rick Walker