How the Russia-Ukraine war can affect the Stock Market
Find out how you can protect your money and investments in the stock market in times of international crisis such as the Russia-Ukraine conflict.
by José Gonçalo
Why the current conflict between Russia and Ukraine is causing instability in the global stock market
Since the beginning of the year, when the Russian attacks on Ukraine began, the stock market has been experiencing a real seesaw. Thus, each new episode of the Russia-Ukraine conflict echoes in the stock market causing crashes and rallies.
In fact, these fluctuations have already caused many people to lose money or regret the decisions they made. Therefore, it is important to understand the conflict to make better decisions.
Therefore, in this article, we will explain why the conflict between Russia and Ukraine affects the stock market so much and how you can better manage your investments in this “rough sea”.
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How could the Russia-Ukraine war affect the stock market around the world?
Indeed, in Europe, Russia is the main exponent in the production of oil and gas. From this country come pipelines that transport the gas that heats the vast majority of houses on the old continent.
In addition, Russia is the second country in the world that produces the most oil. 11.67% of all the oil that circulates in the world in the form of derivatives (mainly gasoline) comes from here.
In terms of production of this good, the Russians are only behind the United States of America, which has 13.55% of world production. Thus, Russia has a huge weight on the price of oil and gasoline.
At a historic moment when oil reserves are beginning to show the first signs of depletion, Russia is gaining even more economic and political importance.
After all, the entire world’s transport of people, commodities and products is based on the use of petroleum derivatives. So when the conflicts between Russia and Ukraine started earlier this year, the entire market went into shock.
Indeed, uncertainty in oil supplies, the specter of the cold war and the chances of a third world war began to hover in investors’ minds.
In the international market, the impact was felt first in the price of a barrel of oil, which jumped from US$ 97 to US$ 105, almost 10% higher in just one day. With oil prices soaring, all the world’s economies suffer.
According to a report by BMO Capital Markets Economics, a $10 rise in the price of oil can reduce US GDP by 0.1%. In other countries, the expected effects are the same.
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Effects of the conflict between Russia and Ukraine on the stock market of the countries involved
Certainly, the effects felt in the countries directly involved in the conflict were more drastic for Ukraine. The chances of new, even heavier Russian attacks and important elements for the country’s infrastructure alienated foreign investors who viewed the country with good eyes.
Furthermore, most Ukrainian investors had to leave the country and their businesses behind as a result of the war. Therefore, negative effects are expected to take a long time to reverse.
Negative impacts were also felt in Russia. Through sanctions mainly imposed by the US, the country is obliged to conduct its economy in isolation from the world.
According to Daleep Singh, assistant director of national security at the White House, Russia is allocating federal funds to artificially support domestic businesses. “It’s not a real market, nor an enduring model,” said the director.
How can investors protect their money during this time of uncertainty?
In fact, you may be asking yourself, “what should my stance be towards the stock market during the Russia-Ukraine conflict”? “What should I do to protect my money in this scenario.”
So David Sekera, Chief US Market Strategist at Morningstar, has an answer: do nothing! “This is not something that would make me think that people should change their investment allocations,” the experts said.
Thus, this opinion is reinforced by historical data. Sam Stovall, the chief investment strategist at investment research firm CFRA Research, has researched the market repercussions during military and terrorist actions since the end of World War II.
At spawn, stocks drop 1% the day after the event and 5% the days after. However, within a month, the low is recovered. Thus, this trend is expected to continue in the stock market during the Russia-Ukraine conflict.
So the best advice is: don’t be guided by the headlines and stick to your strategy. If you’ve taken some desperate action because of the latest news, consider correcting your mistakes and not doing the same.
If you still don’t have a strong and well-defined strategy, it’s time to define your market posture. In times of high inflation, part of your income may “disappear”. To learn how to protect yourself, click on the link below and read an exclusive article.
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