Alun John and Samuel Shen, Dhara Ranasinghe

HONG KONG/SHANGHAI/LONDON – What appeared to be a tail risk for the world market just a few months ago became a real possibility on Thursday when Russia’s attack against Ukraine created uncertainty that sent money managers scrabbling in an attempt to determine their investment consequences.

After Russian President Vladimir Putin approved what he described as a “special military operation”, which was referred by Western governments to as an invasion of Ukraine, oil prices rose above $100/barrel for the first time since 2014.

The benchmark in the United States pared its earlier losses, and fell by around 1% during late-morning trades. Tech-heavy Index has seen a drop in Treasury yields, which helped to support gains and losses. The Index recently fell 0.3%.

Neil Wilson is chief market analyst for markets.com. He said, “It’s a gut test market.” The market is driven by near-term fears. It’s impossible to predict how the market will react over the coming days.

Most investors agreed.

Francois Savary CIO of Prime Partners in Geneva said, “In terms of asset allocation, the best thing is to not act right now, but not overreact until you know what the final outcome will.”

Graphic: Russia’s attack on Ukraine roils world markets – https://fingfx.thomsonreuters.com/gfx/mkt/mypmnxonlvr/mkts2402.png

It was similar to past geopolitical eruptions.

Investors invested in so-called safe assets to increase gold prices, which jumped to their highest point for more than one year.

In the beginning, yields on U.S. Treasuries fell more than 10 basis point.

The latest developments add complexity to the situation, and investors are tempted to make inflation trades.

In addition, oil prices rose, with wheat futures jumping to their highest level since July 2012. Soybean futures reached nine year highs, while soybean futures reached a new peak. Corn futures also hit an eight month high. [GRA/]

Yuwei from Water Wisdom Asset Management said, “Whether there will a full-blown conflict or not, we can simply bet upon an inflation spike.”

It means purchasing oil and agricultural products as well shorting U.S. consumer shares.

Russia and Ukraine together account for approximately 29% global wheat exports. A military intervention could affect crop movement and prompt a massive scramble of importers for supplies from other parts of the Black Sea.

Reuters reports that some Russian oil buyers have not been able to obtain letters of credit from Western banks in order to pay for their purchases. This raises the possibility of disruptions to energy supplies.

Karen Jorritsma from RBC Capital Markets, Sydney said that “this will scatter global investor trust.”

The transition from stimulus is underway in the world’s economies. Now the question remains as to what will happen to global growth.

It is now up to the United States of America, Britain, and Europe to decide if additional sanctions will be added.

OPPORTUNITY?

Some investors saw the equity market’s sharp fall as a buy opportunity.

Cliff Hodge is the chief investment officer at Cornerstone Wealth. He stated that “most geopolitical events” are short-lived and create opportunity.

He said that oil prices were still a problem because they are like taxes and would have an effect on economic growth.

Some investors also looked at assets that were linked to Russia and Ukraine, both of which have been hard hit in the recent past.

Unnamed portfolio manager from a U.S.-based asset manager said Ukraine’s worn-down bonds were an excellent bargain, “unless Putin occupies Ukraine fully.”

An investor’s demand for Ukrainian debt was so high that it exceeded 15 percent. It is the largest increase since 2015.

Russian assets took another beating. While the RTS stock index in dollar was down 40%, it dropped to 489 points. This is its lowest point since 2016. Yields on Russian sovereign bonds rose. However, bargain hunters weren’t expected to hurry in.

Dirk Willer of Citi Global Macro and Asset Allocation, said that while buying the dip might be the correct response to geopolitics, it may not work for every part of the globe where the fire is really burning.

Graphic: plunges as Russia launches invasion on Kyiv – https://fingfx.thomsonreuters.com/gfx/mkt/znvneneabpl/Pasted%20image%201645696188812.png