WeekWatch

The large scale Russian military build-up on the Ukrainian border continued to dominate headlines last week, causing markets to remain volatile.

Eastern and Western sources battled to control the narrative, fuelling the ongoing uncertainty. On Wednesday, markets rose as Russia said it had begun pulling some of its soldiers away from the border. Markets fell the next day as Western sources cast doubt over the claims and suggested an invasion could still be imminent. On Friday, conflicting reports began to emerge of escalating violence in Eastern Ukraine, including the suggestion of shelling in the Donbas region.

Although Western allies have said they wouldn’t condone military intervention in any Russian invasion of the Ukraine, they’ve also made clear that any such invasion would be met with heavy sanctions.

On Thursday, UK Prime Minister Boris Johnson clarified some of the sanctions Britain would enact: “What we’re doing is targeting particular Russian banks, Russian companies, and making sure that we take steps, take even more steps, to unseal the facade of Russian property holdings.”

He added that the government would look to stop Russian companies from raising capital on London financial markets. Other Western markets would likely take a similar action, and this could have damaging effects on the market value on Russian companies.

Lauren Yamasaki, Senior Investment Product Specialist at St. James’s Place, says: “Despite our funds and portfolios having a relatively small exposure to Russia-based stocks and bonds, this could have a wider impact, particularly on investments in the energy sector, where Russia is a major supplier of oil and gas, and on cyclical sectors as increased energy prices will add further pressure to the current environment of rising inflation.”

One issue facing Western leaders is the dependence of many EU nations on Russian oil and gas. According to Mark Dowding, Chief Investment Officer at BlueBay Asset Management, this has left many leaders in weak negotiating positions, particularly Germany. He adds: “Beyond Russia’s borders, the question more broadly is what would be the impact to the global economy of any conflict. The price of oil and gas would surely jump, but it is debatable how high prices would stay and for how long.”

Given the ongoing, rapidly developing situation in the East, it is not surprising that the FTSE, S&P 500, NASDAQ and STOXX Europe 600 have all been volatile throughout the week, a situation likely to continue in the near term, until or unless the crisis is resolved.

With such unpredictable conditions, the risk of making kneejerk decisions to sell out at the first sign of volatility could have considerable repercussions on your long-term returns. Even if resisting the urge to do something is hard to ignore.

As Adrian Frost from Artemis says: “For investors, a pattern of past geopolitical crises is that, ultimately, the underlying economic context tends to dominate. The sell-offs are relatively shallow (6% on average) and short (three weeks to trough, and then to recovery.) Though we can’t and don’t give financial advice, the saying ‘time in the market, not timing the market’ seems apt.”

Any increase in oil or gas prices is likely to impact the already growing inflation rates around the world. Last week the UK revealed CPI inflation in the country had hit 5.5% – the highest level in 30 years. Part of this can be blamed on smaller discounts in the January sales than we have seen historically. Unsurprisingly increasing fuel prices were also to blame.

With fuel costs set to increase substantially for UK consumers in the coming months, it seems pricing pressures will continue to increase for some time.

According to Paul Dales, Chief UK Economist at Capital Economics, inflation could potentially reach almost 8% in April: “This will add more pressure on the Bank of England to raise interest rates rapidly. We think rates will rise from 0.50% now to 1.25% this year and to 2.00% next year.”

This presents a challenging situation for the Bank of England. While increasing interest rates would help limit inflation, it would add further challenges to UK households and businesses already struggling with increased costs. Other commentators have more conservative forecasts for interest rates, AXA expect them to increase to 1.00% by August, and to remain there into 2023.

In times of such uncertainty, a diverse portfolio of investments and a long-term outlook can help to mitigate some of these risks.

Despite covid restrictions winding down, the pandemic has taught many of us a valuable lesson about how our health can be unexpectedly and dramatically altered.

Have you considered what would happen if you could no longer manage your financial affairs yourself, or make other important decisions concerning your health and welfare?

Many people believe that their next of kin or another close relative or friend would simply be able to pick up the reins on their behalf. However, that would not automatically be the case, unless they had already set up a power of attorney.

A Lasting Power of Attorney (or Continuing Power of Attorney in Scotland and Enduring Power of Attorney in Northern Ireland) is a legal process that allows you to appoint someone else to look after your affairs for you if you’re unable to.

You have options. There are two different kinds of Powers of Attorney, which are:

• Property and financial affairs

This allows your attorney(s) to make decisions on your behalf about matters such as managing your bank accounts, paying bills, paying for a care home or in-home care, managing your pension and investments, and deciding what to do with your property if you’re no longer living in it.

• Health and welfare

This allows your attorney(s) to make decisions for you about matters such as medical care, moving into a care home, your daily routine (such as washing, dressing and eating) and life-sustaining treatment.

We regularly hear about clients who are in a moment of crisis but haven’t arranged a power of attorney. Their relatives are often desperate to be able to access their money – to pay for social care, for example – and to make other important decisions, but they are unable to do so.

We therefore strongly advise putting both kinds of power of attorney in place as soon as you can to ensure that, should the worst happen, at least the headache of having someone manage your affairs will be avoided.

Powers of Attorney involve referral to a service that is separate and distinct to those offered by St. James’s Place. Powers of Attorney are not regulated by the Financial Conduct Authority.

“The United States and NATO are not a threat to Russia. Ukraine is not threatening Russia. Neither the US nor NATO have missiles in Ukraine. We do not have plans to put them there.”

President Biden discussing the ongoing situation in Russia.

Artemis, AXA and Capital Economics are fund managers for St. James’s Place.