02 / 22


Markets were brought to their knees in February by the invasion of Russian troops in Ukraine. The previously unimaginable totalitarian invasion of Ukraine became a reality and EU security policy experienced a playless wake-up call. The invasion also marked the largest military offensive since World War II. By the end of the month, NATO allies imposed massive sanctions to isolate Russia from financial markets. Among the sanctions, Russia's banks were banned from the SWIFT network. This type of sanction was often described as a "nuclear option" by the Western partners. Germany, however, wanted to make sure that gas supplies to their country were not at risk - that is why not all banks were excluded. The European dependence on Russia's energy is immense (see FOCUS). Russia's surprisingly aggressive actions triggered a wave of solidarity for Ukraine worldwide. Even China abstained in the UN Security Council, not vetoing the Russia resolution. For an economic environment already plagued by inflation, this war is even more inconvenient. The still high energy and commodity prices, which are being fueled by the war, are an additional burden on the outlook and at least give central banks an argument to work on normalizing monetary policy. In mid-March (March 16), despite everything, the U.S. Federal Reserve will probably implement a first rate hike of at least 25 basis points. Since long-term inflation expectations are stably anchored and the war has now added to uncertainty, the likelihood of a 50-basis point hike has fallen sharply.

Stock markets

After an already very weak January, stock markets also suffered significant losses in the reporting month of February. Russian equity investments have been virtually halved since the beginning of the year (Russian Traded Index CRTX -53%). Companies with high exposure to Russia were under strong pressure. Among them were also European oil companies such as BP or TotalEnergies. In contrast, the Western markets lost less. European markets fell -2 to -7% and the leading markets in the USA lost roughly 3%. Despite the incredible headlines, it is noticeable that the panic in the market was not able to surpass the January pessimism. Arms stocks jumped after Germany's announcement of an additional EUR 100 billion in additional investments in armaments. Shares in Germany's Rheinmetall AG gained 45% in February alone. The Swedish manufacturer of the Gripen fighter jet soared by 30%. The UK FTSE-100 surprised with a small gain thanks to a high proportion of energy and commodity stocks, which continued to be sought after due to rising oil and metal prices.


Despite the broad market panic, bonds were hardly in demand. Global government bond yields rose around the world, highlighting the dilemma of the typical bond-equity portfolio, which has mostly benefited from rising bonds in periods of uncertainty over the past decades. Thus, the historical diversification benefit has not materialized in the current environment either. By the end of September, the U.S. Federal Reserve is expected to raise interest rates at least four times to fight inflation. A strong U.S. labor market and high inflation rates would probably justify a faster normalization process. However, the sharp escalation in the Russia-Ukraine conflict is likely to raise growth fears.

Currencies / Commodities

Broad weakness prevailed against the Swiss franc. Virtually every currency except the Australian and New Zealand dollars depreciated against the Swiss franc. The Swedish krona was hit particularly hard, which is hardly surprising given its proximity to Russia. Commodities were in strong demand. The price of wheat increased by 20% due to the war. Russia and Ukraine account for a quarter of global wheat exports. Precious metals such as gold and silver benefited from uncertainty and inflation fears. Brent oil peaked at $105 per barrel.


The positive growth outlook and the very negative investor sentiment in the markets have so far justified an overweight equity allocation. The Russia-Ukraine conflict now significantly increases the uncertainty in the outlook. A further spiral of escalation between Russia and the West would have an additional negative impact on the growth outlook. The conflict will further fuel already high inflation. In the run-up to the start of the war, we selectively reduced risks and built up precious metal positions. In the new reality of unpredictable inflationary pressures, fueled by a new geopolitical escalation stage, we thus consider it more sensible to align equity risks more deeply and even more selectively.


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