Betting has reached new heights. As Putin warns of nuclear deterrence, many are hoping that planned talks between Ukraine and Russia will progress.
In an attempt to thwart Putin’s invasion, the United States and many European countries have imposed sanctions on Russia. Recent moves by Russia’s central bank will dramatically limit the country’s ability to participate in the global financial system.
A key consequence of these measures is that the government will probably fight to gain access to their foreign exchange reserves. This will further reduce the value of the ruble. In this situation, Russian officials need to find other ways to support their currency. These options are limited.
Many are wondering what the international financial picture will look like in the days to come.
The Financial Times report suggested that the results could be limited to Russia and “moderate direct exposure to Russia by Western financial institutions, partly due to sanctions imposed after Crimea joined 2014, as well as the emergence of more investors – Asia’s friendly economy.”
The authors explain that only 3.4% of MSCI’s emerging market equity index is Russian-based. Meanwhile, Russian citizens have to face considerable difficulties as long lines are formed at ATMs and more and more people try to withdraw their funds from banks. This jolt of activity can provoke more fear which can lead to further withdrawal. The result will be a run in the bank.
Although Russia will suffer the most, the recent move to ban Russia from the SWIFT international financing system will hurt many other countries. This decision will affect trade, as Russia is responsible for 10% of oil and natural gas production.
Other countries may experience slower growth and a steady rise in inflation. The production supply chain will be damaged or in some cases completely shut down.
Many investors are uncertain about how to proceed through the fog of war in the role of many influential factors. If you look at the past, you may find some answers.
LPL research data show that the Dow Jones Industrial Average fell by an average of 2% during 16 major events between 1990 and 2020.
Extending the timeline offers a more perspective. After 21 major geopolitical events since 1941, the S&P 500’s average total draw was 5%. Some of these incidents include the assassination of President John F. Kennedy and the 9/11 terrorist attacks. The average time it takes for the S&P 500 to recover from those losses is just 45 days
The road ahead is unclear but U.S. investors should take some time to remember that dramatic financial market movements are normal during times of turmoil. Fortunately, they are usually short-lived.
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