All eyes on the Ukraine and Russia border

February 24, 2022
In what has become a familiar pattern, markets rose in the early part of the week amid signs that Putin’s aggressive posturing towards Ukraine might be just that, only to fall back as he appears to up the ante yet again.

The week that was

In what has become a familiar pattern, markets rose in the early part of the week amid signs that Putin’s aggressive posturing towards Ukraine might be just that, only to fall back as he appears to up the ante yet again. At the time of writing the following Monday it appears an olive branch of sorts has been tentatively extended so maybe he does have weekly schedule to attend to when torturing world leaders. Tech and growth stocks trading on higher multiple also continued to be the touch point for risk and they fell the most at the end of the week having bounced earlier. The US market ended the week down 2% along with the UK and Japanese markets, while continental Europe and emerging markets fared a little better and were flat for the week.

Valuation concerns seemed to undermine the large US tech stocks as well as the threat of regulation with Apple now in the firing line over anti-competitive practices associated with its IOS app store. Healthcare stocks were the next biggest contributor globally, but most sectors ended the week down in what was a more broad-based fall than has been seen recently. This is maybe a small sign that some of the perceived valuation discrepancies between tech and traditional sectors are narrowing. Another explanation is that long bond rates around the world eased while medium-term inflation expectations remained steady, implying a slight easing of real rates which took some of the pressure off tech stocks which have become increasingly sensitive to changes in rates.

Energy was in fact the worst performing sector, if not the biggest contributor by virtue of its diminished weighting, and oil prices were also down despite rising tensions surrounding Russia and Ukraine (oil companies have in recent weeks been seen to be a natural hedge for a Russian conflict). To some extent this could be seen as a pause in the context of a 30% rise this year but also may indicate that the oil market is looking through the current crisis and the increasingly alarming headlines. Industrial metals were up slightly while soft commodities were mixed but flat overall.

In amongst the noise the Australian market marched to its own less volatile tune and seemed to be more concerned with the local reporting season, which has so far been by and large quite positive. While cost pressures have been widely cited, they don’t seem to have weighed on profits to a great degree, perhaps because they have been passed on to the consumer. Almost halfway through the reporting season most companies have surprised on the upside and notable gainers last week were Treasury Wine Estates and Magellan, which managed to reassure edge investors with an increased dividend and assurances over a more focused strategy going forward. Fortescue was the biggest loser after reporting lower profits and lower dividends in the face of rising operating costs, a softer iron price and, arguably costs associated with investing in green energy. Overall corporate guidance pointed to more buoyant conditions ahead as the domestic economy. This is sharp contrast to the global companies that reported in recent weeks and who seem more a little more worried about rising cost pressures during the remainder of 2022.

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