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Russian invasion rattles the world

March 8, 2022
clock 9 MIN READ

Government-bond rates increased across maturities for the month, rising sharply through mid-February before partially retreating during the second half of the period. 

There are always uncertainties to consider when it comes to investing; currently, we are focused on geopolitical risk and the economic fallout from Russia’s invasion of Ukraine. 

Global equities saw their 2022 losses deepen during February, although they fell by less than in January. Russia was unsurprisingly the worst-performing country, with the MSCI Russia Index plunging by 52.75% for the month; shares cratered as its invasion of Ukraine invited sanctions from around the world that crippled its financial markets.

Russia (which accounted for roughly 3% of the MSCI Emerging Markets Index as at 31 January 2022) weighed on emerging markets, which slightly lagged developed markets in February. A boost from commodity exporters in Latin America helped to minimise the gap between emerging- and developed-market performances.

Among major equity markets, the UK was the best performer with a small gain. Japan declined but fared better than both Europe and the US, while Hong Kong and China had steeper selloffs.

Value-oriented shares continued to fall by considerably less than their growth-oriented counterparts. Globally, the only equity sectors with positive performance were materials and energy.

Government bond rates increased across maturities in the UK, eurozone and US during February. Rates rose sharply through mid-month before partially retreating during the second half of the month. Long-term US Treasury yields fell significantly in late February, flattening the Treasury yield curve.

Emerging-market debt plummeted during the month, most sharply within local-currency assets, and most other areas of fixed interest were also down. Inflation-indexed securities were positive.1

Commodity prices made a subdued advance for most of February before catapulting higher in the final days of the month (and into the beginning of March) as markets reacted to the unfolding attack on Ukraine. The Bloomberg Commodity Index increased by 6.2% in February, while Brent and West-Texas Intermediate crude oil prices gained 9.8% and 8.6%, respectively, before racing past the $100 per barrel mark on 1 March.2 Russian oil prices actually declined at the end of February as refiners and lenders began to limit financial commitments with Russian producers.

Ukraine’s emergency service reported in early March that more than 2,000 civilians had been killed during Russia’s invasion.3 The Russian Defence Ministry stated that 498 soldiers had been killed and more than 1,500 wounded, significantly below the 5,800 Russian casualties reported by Ukrainian officials.4 Approximately one million Ukrainians had fled their country by early March.5

Western nations responded to Russia’s offenses with an array of sanctions, bans, and other coordinated actions—largely focused on disrupting the country’s financial, energy, technology and transportation activities, as well as state-owned enterprises and high-profile individuals in public and business positions.

In addition to having mounted a fierce resistance to Russia’s invasion, Ukraine submitted a formal application for admission to the EU. NATO activated its Response Force for the first time, calling up 40,000 troops to bolster the eastern part of the alliance in the face of intensifying aggression toward Ukraine.6

The European Commission, France, Germany, Italy, the UK, Canada, and the US committed to removing Russian banks from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) messaging system for financial payments; block the Russian Central Bank from deploying its international reserves; limit the sale of citizenship to wealthy Russians; and launch a transatlantic task force to freeze the assets of sanctioned entities.

In practice, the moves have essentially blocked Russian entities from trade in major foreign currencies. Upon imposition of these coordinated sanctions, the Russian Central Bank was forced to hike its benchmark rate from 9.5% to 20%; offer unlimited liquidity support to banks as they faced runs; raise capital controls on exporters and residents; and shutter its financial markets.7

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1 According to data from FactSet and Lipper
2 According to market data from The Wall Street Journal.
3 “More than 2,000 Ukrainian civilians killed during Russian invasion - Ukrainian emergency service.” Reuters. 2 March 2022.
4 “Russia Gives First Count of Casualties in Ukraine War.” The Wall Street Journal. 2 March 2022.
5 “A million refugees have now fled Ukraine since the start of the war, U.N. says.” NPR. 2 March 2022.
6 “Statement by NATO Heads of State and Government on Russia’s attack on Ukraine.” NATO. 25 February 2022.
7 “UK to join US and EU in imposing sanctions against Russian central bank.” Financial Times. 2 March 2022.

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