Russia-Ukraine: Reassessing Your Portfolio

The Event

On the morning of Thursday, the 24th of February, Russia announced the invasion of Ukraine sending shock waves across the globe.

The Response

  • The U.S and the European allies imposed several sanctions on Russia, some of which include the restriction of access to foreign capital while limiting its ability to process payments in dollars, euros, and other currencies crucial for trade (the so-called SWIFT sanctions).

The Expected Macro-Economic Impact

  • If the current situation is prolonged, the impact could be severe – as at the 28th of February, the value of Russian currency has declined by a third and the country has raised her interest rates to 20% to attract capital.
  • We expect soaring global commodities prices.
    • Russia is the third largest producer of oil, hence, oil prices will continue to soar on supply constraints. This is positive for Nigeria, as an oil producer. On the other hand, as an importer of refined petrol, this conflict is likely to increase the subsidy burden on the already strained fiscal position of the government, as we expect refined petrol prices to rise in tandem with crude prices.
    • We see rising global food inflation hinged on supply-chain disruptions as the conflict involves soft commodities powerhouses in Russia (cereals, grains, fertiliser) and Ukraine (a major supplier of corn). Nigeria has been dealing with elevated food inflation, and a prolonged conflict will further exacerbate that.

How does this affect your portfolio?

  • Practice patience and keep your options open. Maintain overweight cash positions to enable you take positions when they arise and act as a risk management strategy.
  • With the rising uncertainty, investors with a low risk tolerance should seek safe havens in Gold and money market instruments. The FBN Money Market Fund and the FBN Bond Fund provide the requisite safety for investors.
  • Global equity weakness should persist, creating select buying opportunities for investors with the appropriate risk tolerance. Global equity investors should focus on a diversified, quality portfolio, including risk mitigating assets like energy and commodity stocks.
  • We expect yield increases in frontier Eurobonds market, allowing investors pick up quality assets at attractive valuations. Investing in the FBN Dollar Fund allows you benefit from these markets and earn returns in USD.
  • Our neutral view on local equities is unchanged, and we advise investors to maintain diversified equity portfolios and invest in the FBN Smart Beta Equity Fund and the FBN Balanced Fund.

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