Diego Fernández Elices (A&G) | Russia’s determination to go all the way leads us to expect there will not be a quick solution to a complex situation. It will continue to fuel volatility and NATO’s reaction will be particularly relevant.
The stock markets’ performance during military conflicts in the past suggest that there are usually periods of slumps which are of short duration. Then a few months later, the markets tend to make a strong recovery. And the declines in the month prior to the start of the conflict are greater than in the first month after it begins.
The economic and financial aspects, which will be relevant in the medium-term, are not very important today, but they should point us in the right direction. In this respect, neither trade or financial conditions are at significant risk, with the biggest risk being a possible disruption in the gas market.
There is a high level of pessimism, but it is early to talk about capitulation. We would not yet take indicators of sentiment as contrary signs of extreme pessimism to add risk aggressively to portfolios. But they suggest, in general terms, that it is also not a good moment to aggressively sell risk assets, giving in on this point.
The economy’s fundamentals have improved significantly in the last month and will provide support for the recovery when the tension in Ukraine eases.