politics

Market Pullback Will Be Worse Than Crimea If Russia Invades, Goldman Sachs Says

Oleksandr Klymenko | Reuters
  • Global stocks tumbled on Monday as fears of an imminent invasion intensified, with a number of countries urging citizens to flee Ukraine.
  • U.S. President Joe Biden's national security advisor Jake Sullivan warned on Sunday that an incursion could come "any day now."
  • Ukraine has requested a meeting with Russia within 48 hours.

The hit to stock markets from a potential Russian invasion of Ukraine would be worse than that seen after the annexation of Crimea in 2014, according to Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer.

Global stocks tumbled on Monday as fears of an imminent invasion intensified, with a number of countries urging citizens to flee Ukraine. U.S. President Joe Biden's national security advisor Jake Sullivan warned on Sunday that an incursion could come "any day now," and Ukraine has requested a meeting with Russia within 48 hours.

The pan-European Stoxx 600 index fell sharply on Monday morning, and Oppenheimer said European stocks will remain beset by volatility until uncertainty over the geopolitical situation in Ukraine subsides.

U.S. stock futures pointed to a sharply lower open on Wall Street later in the day and markets in Asia-Pacific closed in negative territory. Oil prices also spiked to a seven-year high. Germany's DAX, with its heavy exposure to Russian gas, fell 3.4% on Monday, mirroring its fall in 2014.

"If we look at some of the recent episodes — if we look at the annexation of Crimea, for example — we think it pushed the risk premium up by about 20 basis points, which had roughly a 5% impact on the equity market, and this would probably be bigger," he told CNBC's "Street Signs Europe" Monday.

"So the sort of moves that we're seeing – perhaps an adjustment of risk premia between 20 and 40 basis points, – that could in itself reduce the equity market by a little bit more than 5% seems reasonable."

'Temporary setback'

In February and March 2014, Russia invaded and annexed the Crimean Peninsula, sparking international outcry and a wave of economic sanctions, and military experts have likened the extraordinary buildup of Russian forces at the Ukrainian border in recent weeks to that which preceded the previous invasion.

"When Russia moved against Ukraine in the first half of 2014, euro zone economic sentiment barely wobbled," said Holger Schmieding, chief economist at Berenberg.

"Real GDP growth decelerated from 0.4% quarter-on-quarter in Q1 2014 to 0.2% in Q2 before rebounding to 0.5% QoQ in Q3. Of course, the temporary setback could be more pronounced this time."

Schmieding noted that although Russia is a serious military power with vast economic potential, it is not yet a major market for Europe, with Germany selling just 1.9% of its goods exports to Russia versus 5.6% to Poland.

"Relative to all other factors that will shape the euro zone's economic performance this year (omicron receding, supply chain problems slowly easing, Fed raising rates), some losses in non-energy trade with Russia as a result of sanctions and counter sanctions would likely have an almost negligible impact on Europe's growth outlook beyond the next one or two months," he added.

Berenberg therefore expects European markets to rebound shortly after the temporary setback that any potential attack would cause.

'Twin troubles'

Global markets have been rocky since the turn of the year, and took another downward turn toward the end of last week after a red hot U.S. inflation print sparked speculation that the Federal Reserve could be forced to hike interest rates more aggressively than expected in the coming months.

An investor confidence index published Monday by British online stockbroker Hargreaves Lansdown showed sharp falls in investor confidence between January and February.

Senior Investment and Markets Analyst Susannah Streeter said the "twin troubles" of looming conflict and soaring prices were likely behind the plunge in sentiment.

"As consumers brace themselves for more financial pain to hit as household bills shoot up and retailers are forced to pass on higher commodity, transport and labor costs through the price of goods and services, investors are doubly spooked by the prospect of war breaking out in Europe," Streeter said.

"A fresh surge in European gas prices is also expected if conflict does erupt which would intensify the cost of living squeeze and this could temper consumer confidence."

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