HYCM chief analyst on Russia’s invasion of Ukraine: ‘financial costs tend to be limited’

on Feb 24, 2022
  • Russia's MOEX index fell by 50% at one point, with trading halted briefly.
  • HYCM chief analyst says markets will be hit, but "financial costs tend to be limited"
  • Gold and other commodities may see major upsides as the crisis escalates

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Russia’s invasion of Ukraine saw global markets plummet, with investors fleeing into safe-haven assets to send gold to a new yearly high.

As stocks across Europe fell, Russia’s benchmark index MOEX tumbled nearly 50%, with trading temporarily halted and the Bank of Russia intervening in FX markets.

Stocks of Russian banks and oil companies are among the worst hit in late afternoon trading, with Sberbank (SBRCY) down 46% Gazprom (GZPFY) underwater at -34%.

The US market has also opened lower after yet another negative move on Wednesday saw the S&P 500 lose more than 1% to remain in correction territory. EPAM Systems Inc. (NYSE: EPAM), one of the S&P 500 companies whose revenue has the highest exposure in Europe, has tumbled more than 13%.

More sanctions could impact markets further

Commenting on the impact of Vladimir Putin’s attack on Ukraine on markets, Giles Coghlan, chief analyst at HYCM said:

“As military action escalates, we can now expect a steady trickle of further sanctions throughout the day, which will have ramifications across the markets.”

Coghlan however believes that the added sanctions will initially have a “measured impact on Russia’s financial system, likely not hitting the Russian stock market as hard as might be feared by some investors.

“[But] going forward, any further sanctions imposed – especially those placed on Russia’s largest state-run banks – could have a sweeping effect on everyday Russian people, as well as the current production of oil and gas,” the analyst added.

Bank of England’s Governor Andrew Bailey said on Wednesday that the breakout of war comes with upside risk of energy prices shooting even higher. Coghlan notes that rising energy prices combined with higher commodity prices and flight into safe-haven assets will likely pull global stocks lower.

If this happens, the MOEX index could see even more losses. The MOEX Russia index live currently has the market 34% down while the pan-European Stoxx 600 index is courting losses above 3%. UK’s FTSE 100 is also down more than 3%, with the same picture painted across the European stocks market.

Should investors be worried?

As dour as the Russian market looks, Coghlan says the market reaction might be surprisingly mild. He believes medium-term buyers could benefit. On whether investors should be worried, the analyst opines:

“As sad as the human cost is during this event, financial costs tend to be limited,” he said.

He says this happened during “some of the gravest world events in recent history.” The market reacted so after during Syria’s conflict in 2017, North Korea’s Missile crisis and the US withdrawal from Afghanistan.

According to the analyst, these instances suggest that “market reaction to these events can be surprisingly mild.”

“Most dips end up being bought, so medium-term buyers can often find good value in these bleak times,” he concluded.