At the moment, the Russian invasion on Ukraine is a “Schrödinger’s cat”, or a “Schrödinger’s war” – there is a war… and not. Everyone hopes it won’t happen, but if it does, it’s better to be more prepared.
When it comes to investments, In the first case I’d expect growing prices of resources, especially gold and oil. In such event risky assets would depreciate. Whether it’s bitcoin, growth stock, unicorn or a junk bond – in the wake of the new risk the market players reduce their other risky positions, driving their prices down. This includes currencies for developing economies, especially in the region.
I’d also expect EUR losing to USD. In case of Russian invasion on Ukraine, the EU would bear large economic consequences. Through the gas prices, refugees and disintegrating forces. On top of that people like to have the US dollars in the uncertain times. All over the world.
Another factor working in USD’s favor is the expectation of the interest rates hikes in the US. I’m skeptical though. FED can afford to wait. In the wake of the war it might be unwilling to risk any economic slowdown. Even at the expense of higher inflation. FED also has to account for the weaker fiscal stimuli resulting from blocked Build Back Better Plan.
These fears are – to large extent – already factored in. Should war not happen, one could expect moves in opposite direction – raise in risky assets’ prices, drop in gold and oil etc.
It is tempting to chose one of the opposite scenarios and go for it. The real deal is to realize there is no way to know. If one is convinced, one should overweight his portfolio towards the more likely scenario. Putting all eggs in one basket is never a good idea.
What I find interesting is that the ESG investments are likely to gain importance in both scenarios. Especially in the sustainable energy area. If something got reaffirmed in this crisis, it is that Europe would prefer to have more energy independence. That can be helped by the renewable energy sources – the only means that seem to have broad popular support.
