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Russia’s invasion of Ukraine on Thursday triggered an energy security crisis that will cause a further spike in inflation and cost of living, according to Steen Jakobsen, chief investment officer at Denmark’s Saxo Bank.
Retail investors, however, should not panic and view the situation as an opportunity to add defensive stocks and safe-haven assets such as gold to their portfolios, Mr Jakobsen told The National.
“Retail investors should already be aware that we have a new monetary regime, which is dictated by fighting inflation from behind and you now have an energy security issue,” he said.
“Inside equity markets, it is commodities, energy, defence stocks and, down the road, something like cyber security, which, of course, is a critical part of infrastructure.”
Global stock markets plummeted on Thursday after Russian President Vladimir Putin ordered a “special military operation” in the Donbas region of Ukraine.
The turn of events sparked a sell-off in equities across major markets throughout the day, with the UK’s FTSE 100 down 3.17 per cent at 5.10pm UAE time.
Russian companies listed on the FTSE 100 were hit hardest, with state-owned lender Sberbank plunging nearly 50 per cent and state-owned natural gas company Gazprom tumbling 38.27 per cent.
Meanwhile, Germany’s DAX is down 5.26 per cent, France’s CAC index dropped 4.85 per cent and Italy’s MIB index is trading 5.39 per cent lower.
But gold, a hedge against inflationary pressures and a safe haven for investors, rallied 2.89 per cent to $1,964.12 an ounce, its highest since January last year.
In January, US inflation hit a 40-year high of 7.5 per cent. The cost of living in the UK soared to 5.4 per cent in December during the global supply crunch and rising energy prices.
The US Federal Reserve is expected to begin raising interest rates from March to combat rising inflation this year and into 2023. However, the move will increase the cost of borrowing for government, corporate and institutional borrowers, particularly in emerging markets.
“This is a totally different environment; we're dealing with a restricted monetary policy and unwinding 25 years of mismanaged monetary policy because the only way you can get dampened inflation in the economy is by tightening the financial vision,” Mr Jakobsen said.
“So even if the Fed Reserve tonight came out and said, ‘Oh, by the way, we [are] not going to hike at all’, it's not going to solve the inflation issue … [which] has just been made worse by energy security.”
A new surge in energy costs poses a significant risk to economic activity and for corporate profits, which will affect market sentiment and earnings, he said.
Retail investors, however, could consider rotating out of sensitivity stocks to hedge against rising inflation and the Russia-Ukraine crisis, Mr Jakobsen said.
“You will see a fragmentation in the marketplace where companies with exposure to energy and oil will do well; commodities and gold will do well.
“[But] it’s not time to be panicked in the stock market.”
