Friday, June 9

Where to shelter investment in the face of escalating tensions between Russia and Ukraine

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The threat of war between Russia and Ukraine has returned the money to the trenches. The escalation of tension between the two countries has caused a new black Monday in the markets from which very few assets have managed to escape. The investment refuge search has started again.

Investors around the world have not been so worried since the omicron appeared in South Africa two months ago. From small savers to managers of large investment firms they are now guessing about what the safest assets will be in which to put your money to protect it from the evolution of the conflict in Eastern Europe or to get a slice of it.

Unlike other occasions, this time the conclusions they reach are the most varied. Faced with a wide range of possibilities on the table, they range from those who consider it to be an opportunity to buy at a discount even those who believe that it is necessary to hurry to reduce the riskiest positions in the portfolio.

exit sales

Those who opt for the first thesis argue that what happened is a overreaction of highly stressed markets and with high valuations at a pulse that will hardly end in a military clash. Advocates of alleviating risk consider that, regardless of the occurrence of an armed conflict, it is better move tab before the tone hardens even more of the crossed declarations between Kiev, Moscow and the member countries of NATO.

Among those who consider that the best refuge in the future will be to go on the attack now is Ignacio Cantos, managing partner of atl Capital. He does not hesitate to point out that “this is more of an opportunity to buy than to sell”, since he considers that even in the scenario that “Russia keeps a part of the territory of Ukraine, no one is going to get into a war”.

Within this thesis, he advises “look towards growth values”, since despite its strong correction, it highlights that they come from maximums and that in many cases the fundamentals would not have to be affected. If you opt for a more conservative thesis that points to a certain impact on the economy, leans towards strengthening in cyclical stocks and banking before the recovery returned to its growth path.

The director of research for Global X ETFs, Morgane Delledonne, considers that “the most vulnerable growth companies are those that have weaker balance sheets and are dependent on the vagaries of the markets”. At the same time, he explains that this unexpected point of friction, when all eyes were on the central banks, will make investors “more selective”, with the focus “on valuations, fundamentals and quality”.


Aware of this change in trend that has placed “all sectors in a corrective phase in the last month”, Sergio Ávila opts for an intermediate position of taking advantage of investment opportunities, but not before “wait for a bottom to form”. And it is that the IG analyst stresses that “the risks have increased considerably for the stock markets.”

According to this basic framework, Ávila leaves two clues. The first one is that if the tensions loosen and a bottom forms, I would highlight the options for a comeback for defensive consumption, oil, gas and banks on Wall Street.

Some Russian soldiers during exercises this summer.

The second is that if the S&P 500 falls below 4,270 points at the end of the month, it will be time to switch to short-term fixed income or liquidity with the aim of “being prepared to buy once the falls are over.”

“High valuations cannot be coupled with disappointments,” says Axel Botte, global strategist at Ostrum AM. A statement that justifies that The technological giants that gained the most stock market height with the pandemic have now fallen hard. In this sense, he warns that “the mood of risk aversion affects unprofitable technology and the cryptocurrency ecosystem.”

beyond bitcoin

The bitcoin’s growing correlation and her younger sisters with the bags, and especially with the technological ones, has been evident in this clash of war overtones. A situation that, contrary to what happened during the outbreak of the pandemic, has called into question its ability to become the ‘digital gold’ of new investors. So much so that in many cases They are priced at half price that just two months ago.

In view of this trend, several operators in the digital currency market point out the convenience of paying attention to the stablecoins to weather market fluctuations. Depending on what the entry prices have been, they point to the convenience of converting positions in the tokens in which losses are going to be entered in these cryptos with fixed exchange against fiduciary currencies.

In the event that the situation eases and the market changes course, everything would be a matter of doing the same operation in the opposite direction. Furthermore, this strategy would most likely result in less tax obligations than the passage through physical currencies like the euro or the dollar.

Liquidity and shorts

The recent evolution of cryptocurrencies to the tune of the Ukraine conflict shows that “markets are much more global and much less isolated than just a few years ago.” Given this scenario, the analyst Darío García, from XTB, recalls that “being in liquidity and not being invested is also an investment decision”.

As a result of the massive intervention of central banks, García points out that there are only two options left: invest in high-risk assets or stay in others that do not even cover the cost of living. “Not even bonds are worth us anymore,” he laments, taking as a reference their profitability against runaway inflation in all the big economies.

Although he recalls that in a scenario of uncertainty such as the current one “it is very likely that the dollar we have in our pocket will offset the opportunity cost of investing in any asset”, he encourages us to learn about operations with “some financial instruments that allow win when the market falls by going short”.

the safe

For those who find these bearish strategies too sophisticated, the safe is the easiest safe haven. From Ebury they emphasize that here, the currencies that are placed “at the head” are once again the Swiss franc and the yen Japanese. And we should not forget the role of gold, quite forgotten throughout last year due to forecasts of economic recovery and the comeback of risk assets that are now trembling.

The ounce of precious metal it has been, in fact, one of the few assets that in recent weeks have risen against the current and without fanfare. Very close to 1,850 dollars, gold is touching the highest of the last two months. Tomás Epeldegui, director of Degussa Spain, points out that indeed “the demand for physical gold is solid and continues to grow”.

However, Epeldegui acknowledges that the forecast of a strong dollar by the withdrawal of stimulus from the Federal Reserve (Fed) has prevented upward breakouts with the force of other occasions of geopolitical uncertainty similar to the current one.

For José María Luna, independent financial advisor and partner at Luna Sevilla Asesores, the issue of Ukraine points to a “two-step” movement. After a first stampede towards quality such as strong currencies, very long-term government debt and liquidity, he considers that the political pulse – as long as there is no armed war – “will become a great generator of opportunities.”

Here your bet would be directed towards corporate fixed income high yield of “companies whose finances are not at risk.” But also towards equity sectors that, with good fundamentals, have been penalized by this hasty and widespread withdrawal of risk positions.