Sunday, Feb 20th 2022

How tensions at the Ukraine border affect the markets

Investor Update

Here’s what’s happening

  • Russian troops have amassed along the Ukraine border over the last several months, raising concerns that an armed conflict could break out in that region of the world.

  • Comments from U.S. defense officials have spooked markets this month, notably a statement from U.S. security advisor Jake Sullivan who told the White House press corps on Friday, February 11, a full invasion of Ukraine could begin by the end of the Winter Olympics on February 20.

  • Russian leadership has emphasized that diplomatic solutions remain available.

Titan’s TLDR view:

  • Markets have been sensitive to Russia-Ukraine headlines over the last few weeks, with large swings in the price of crude oil a particular pain point for investors. Titan’s only direct exposure to Russia is through Yandex, the country’s internet leader in search, and we recently trimmed this position for clients invested in our Offshore strategy.

What history tells us

  • While it can feel crass to consider the financial implications of a humanitarian event like armed conflict, these developments have been market movers and our investment team is keeping a close eye on the situation.

  • Past performance never guarantees future returns, but market history does tell us about how geopolitical conflicts have been received by investors since World War II.

  • This data suggests that unless armed conflict takes place during a period in which the U.S. economy is in recession, stocks tend to power higher.


What it means for you:

  • As we communicated to clients last week, it appears “geopolitical worries” are replacing “inflation fears” as the most likely macro headline that could spook markets in the weeks ahead. That said, a 1% or 2% move in the S&P 500 on any given day is often not enough to warrant portfolio-level changes.

  • We’re closely monitoring these developments, but outside of trimming our Yandex position have not felt the need to make large portfolio changes in response to this volatility.

Further thoughts from your investment team:

“Given our limited exposure to Russian equities and already defensive portfolio positions with strategic cash at elevated levels, we don’t see the need to make big portfolio changes at this point in time. A risk we’ll be monitoring is whether sustained geopolitical tensions could lead to persistently high oil prices and hotter inflation, which could result in accelerated interest rate hikes.” —Darren Ho & John Bottcher, Titan Investment Analysts

“The Ukraine-Russia saga is dominating news headlines, exacerbating weakness across all risk assets, crypto included. There has been a notable de-leveraging across the crypto derivatives markets this week, as investors de-risk amid global macro headwinds including geopolitical tensions and rising interest rates. Though not a major mover for crypto markets, earlier this week Ukraine’s parliament passed a law to legalize cryptocurrencies. A small piece of positive news in what remains a challenging environment.” —Gritt Trakulhoon, Titan Investment Analyst

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