The Russia-Ukraine war has shaken the global finance on Feb 24th, 2022, however, the rebound occurred the very next day. There was a high closing in the US Stock market Indexes, Russia's RTX indexes and other European Stock markets on Feb 25th, 2022. The safe haven commodities have also returned back to the normal gains after a substantial increase on the first day. On the surface, the war seems to have a limited impact on the World capital market.
However, based on the research from several analysts from the top banks and other economists, the war has a profound and far reaching impacts than the capital markets could reflect at the given moment. There are several implications of this war which will steadily unwind. Here is a short list of impacts from the Russia-Ukraine War and this post is inspired from reading a few research and news articles on this topic.
1. Long term Instability in Russia:
Russia, being the starter of the war and Ukraine, being significantly crushed by the war are both going to suffer a long term instability due to several factors.
Getting pushed out of the SWIFT system, Russia has impaired its ability to execute foreign trade and global transaction.
Potential Ruble Currency crisis primarily due to its isolation in the international capital markets and stunted economic activities.
The international credibility of Russia's debts are critically degraded.
Increased Economic struggles with predicted reduced GDP (7%) and higher inflation rates (Over 14%) ultimately leading to a recession.
Russia is spiralling towards Sovereign default worth $600 Billion foreign reserves.
2. Euro will be dragged down:
Geopolitical adversaries of the war, due to its closer geographical locations with Russia and
Ukraine impact the whole of Europe and hence bringing the Euro value down. Europe suffers due to its sanctions in Russia and the high volume of corporate debts from European banks in Russia. This not only destabilizes the continent but also the Global economy. The EU might issue more Eurobonds to finance the Energy security and defence. This also reduces GDP growth by at least half a point in the whole of Europe.
3. Tightened Monetary policies:
The Russia-Ukraine war has far reaching effects on the US economy and its people. The multinational corporations in the US that obtains revenue from Europe will suffer due to the Europe's economic crisis and in turn face the reduced stock prices. On the other hand, the Federal Reserve of the country has raised its short term interest rate by 0.25% since the housing market crash in an attempt to curb inflation, which was already growing due to increased demand during COVID19. The tightening monetary policy should also be monitored to not push the country into recession.
4. Improved international capital flow in China:
The RMB correlation with global market volatility fell to a 3 year low. This makes it evident that the China's Renminbi's ability to be a safe haven currency. It means that the China welcomes new international capital flow within the domestic market, hence boosting the country's international trading position. In spite of the rising conflicts, China shows the financial market stability. This makes the country, one of the beneficiaries of the capital market amidst the crisis and the conflicts.
5. A Sharp rise in Oil and natural gas prices:
Russia being the major supplier of Oil and natural gas has impacted the global supply drastically. EU and almost all European nations heavily depend on Russia for energy sources and the war has ended up in soaring oil prices to over 41%. Due to marginal pricing system, the EU has rising Electricity prices too as a consequence. High Oil and Electricity prices seem to be a punishment for colder regions in the Central Europe. This in turn lead to energy inflation with no visible end.
6. Significant impacts on the semiconductor and Automotive industries:
The element Palladium is heavily imported from Russia for over 35% by the US and around 41% globally. This is an important component in the Chip manufacturing sector and the automotive industry. This impacts the automotive manufacturers in Germany and Italy. Simultaneously, over 90% of Neon is imported from Ukraine, which plays a major role in Semiconductor industries. Sharp increase in the prices of these two components primarily impact the US Semiconductor sector. Hence companies like Intel, Texas, Analog devices that manufacture AI, IoT etc could be affected.
Apart from the above mentioned affects, there are several global impacts in supply chain impairments, wood and food trades due to the war.
Comments