Macro Research Our take on the Russia-Ukraine Crisis ————— | FSMOne SG - Research Highlights

Macro Research

Our take on the Russia-Ukraine Crisis

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• In the absence of a meaningful de-escalation, we expect commodity prices to remain at elevated levels, while further escalations will likely result in an energy price shock. The flight to safe-haven assets is likely to continue in reaction to escalating tensions.

• Any direct impact on trade, due to sanctions, will largely fall upon European countries. There will also likely be an indirect impact on already-elevated inflation levels, which could potentially lead to stronger policy tightening by global central banks. Further policy tightening, coupled with the growth drag from the Omicron variant, will weigh on the global economic recovery.

• We believe there is no need for investors to panic sell, as geopolitical crises are also hard to predict and price. Investors should be strategically positioned for a trend of rising interest rates and tilting their portfolios towards part of the market that can outperform in such an environment.

• Specifically, we believe investors should consider diversifying their portfolio, and recommend Asian ex-Japan equities. Investors can also consider commodity-related equities as a hedge as commodity prices are likely to remain at elevated levels in the current environment. We also recommend a tilting towards value in equities, and reducing duration in fixed income, in response to the rising interest rate environment.

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