Market roundup: How Russia and Ukraine are affecting global marketsMarket roundup: How Russia and Ukraine are affecting global markets

This month, we’re joined by Scott Phillips, The Motley Fool’s Chief Investment Officer in Australia, Brendan Doggett, Sharesies’ Australia Country Manager, and Sherifa Issifu, S&P Dow Jones Indices’ Index Investment Strategy Associate.

What’s been happening in the Australian share market?

Scott Phillips (The Motley Fool AU)

Last month, we thought it was all about Ukraine. This month, it truly is. Of course, far more important than finance is the humanitarian tragedy and flow-on impacts on others around the world. We’re here to discuss the share market, but it’s important to acknowledge the bigger issues.

Over the past month, we’ve seen the war in Ukraine go from a risk to reality—and the flow-on impact for shares has been swift. The oil price has risen sharply (pushing up costs for motorists and companies alike), and there’s been an increase in the perceived risks of both high(er) and persistent inflation and interest rates.

This has continued to push down the share prices of growth companies, particularly technology-based businesses. Given the predominance of macro factors, it could be easy to forget that last month was earnings season on the Australian Securities Exchange (ASX). That said, earnings tended to follow the same script, with most tech companies (and many retailers) feeling the market’s wrath for perceived underperformance.

Brendan Doggett (Sharesies)

Reiterating Scott’s view, the war in Ukraine is dominating the conversation at the moment. It’s a serious topic with far-reaching effects, and the safety of everyone in that region is paramount. But it’s also important to understand how geopolitical events can impact the share markets. 

Although Australia has relatively low direct economic exposure to Russia, we’re seeing an impact on companies stopping their services or halting trade with Russia, or divesting from their Russian operations. We’re also seeing funds divesting out of Russian investments. All of this will influence Australia’s roadmap to economic recovery following COVID-19.

Sherifa Issifu (S&P Dow Jones Indices)

After a sharp decline in January, February brought a return to gains in the broad Australian share market—the S&P/ASX 200 completed the month with a total return of 2%. Smaller companies underperformed larger firms on average, and the very smallest fared the worst (as represented by the S&P/ASX Emerging Companies Index, which slipped 2%).

Although the Energy sector was the best-performing Australian segment this month, the more heavyweight Materials sector (which includes relative giants such as BHP and Rio Tinto) contributed the most to gains in the overall Australian market. 

What’s been happening in international share markets?

Scott Phillips (The Motley Fool AU)

Ukraine, inflation, and interest rates are on international minds as well. US policymakers, having given up hope that the spike in annual inflation rates would be temporary, are now facing the reality that it’ll be both persistent and hard to beat—made even more difficult by the supply-driven price shocks impacting oil, gas, and wheat. 

Concerns range from the price of fruit and vegetables (transport costs), the impact of the war on global growth prospects in 2022, and the potential hobbling of the nascent tourism recovery (again, transport costs, but also consumer confidence) has dented hopes of a continued recovery through 2022. However, many economists are still expecting strong growth.

Brendan Doggett (Sharesies)

As discussed last month, there’s a lot of uncertainty in global share markets. The conflict in Ukraine is another factor that’s causing a bumpy road, as investors react to new information—in particular, uncertainty around whether it’ll cause energy and other raw material prices to rise.

Russia is a key supplier of oil and natural gas. Russia and Ukraine are also suppliers of commodities like wheat and sunflower oil. Disruptions to supply could cause prices to surge, which will impact the share market. Higher commodity prices adds inflationary pressure to consumer prices, and have the potential to harm economic growth. All up, the impact of the ongoing conflict will continue to feed into the volatility of the global markets and put pressure on central banks as they look at how to drive global economic recovery from COVID-19.

Sherifa Issifu (S&P Dow Jones Indices)

The Russian-Ukraine conflict and subsequent sanctions on Russia by NATO allies has brought volatility to global share markets. The S&P 500® finished the month with a 3% decline, while the UK and New Zealand markets eked out small gains in local currency terms.

Turning to the performances of global sectors, greater harmony could be found between Australian and international returns, with Energy leading overall and Materials close on its heels. The so-called “Big Tech” categories of Information Technology and Communication Services, which include global growth blue-chips such as Alphabet, Apple, Microsoft and Facebook, were the major laggards this month within our worldwide index for blue chips, the S&P Global 1200.

Are there any key themes or trends you’re seeing?

Scott Phillips (The Motley Fool AU)

With so much economic and geopolitical uncertainty, the continuation of that uncertainty is probably the safest bet of all. We might not be at peak pessimism, but markets tend to reach new records over time. It’s often said that the money is made in the buying, not the selling. You have to be able to ride the waves—just don’t expect the sea to be calm any time soon. It’ll be a while until we know if the coast is clear.

Brendan Doggett (Sharesies)

It might feel overwhelming to read the news in 2022—from rising inflation and interest rates, to the fears of a third world war. There’s a lot of concern and anxiety being felt broadly, and that’s having its impact on the share markets. 

As a society, we’ve been through moments of market volatility before. Stay across the news, but don’t necessarily let periods of volatility deter you from your long-term investment goals. Historically, the share market has gone up more years than it’s gone down. Over the last 50 years, the S&P 500 has generated an average annualised return of 9.4%. That’s something I keep in mind as I approach investing in 2022.

Sherifa Issifu (S&P Dow Jones Indices)

The situation in Eastern Europe is primarily a human tragedy, but it’s also created high levels of uncertainty in global markets. As investors act to limit or manage their risks, seek opportunities, or simply react to the events, share markets can become challenging to navigate. Investors may be tempted to try and “time” the market, but data on performance collected over the decades shows that this is surprisingly difficult to do with persistent success.  

The S&P Value Indices, which include companies based on relatively attractive fundamental valuations, have turned to outperformance after decades of relatively poor performance. So far this year, for example, the S&P 500 Value has outperformed the S&P 500 by 10%—its best start to a year on record.  

US inflation is also currently running at its highest levels in nearly four decades, and companies that are more able to “pass through” higher costs to consumers may be better placed to retain their profits. For example, the global Consumer Staples sector is outperforming Consumer Discretionary by over 8% year-to-date. If inflation continues to surprise to the upside, that outperformance may well continue.

Wrapping up

That’s all for this month’s roundup. If you’re on the lookout for more resources to help you learn about investing, we pulled together a list of our favourites earlier last month. We also teamed up with our mates at Pedestrian Group to share some investing trends to watch for in 2022 and some articles to get your investing journey started.

Scott Phillips, The Motley Fool Pty Ltd (The Motley Fool) and S&P Dow Jones Indices LLP (S&P Dow Jones Indices) are not associated with Sharesies AU Pty Ltd or its related companies. Views expressed by Scott Phillips, The Motley Fool, Sherifa Issifu and S&P Dow Jones Indices are their views and Sharesies does not endorse the views they represent. If any financial product or stock has been mentioned, you should obtain that product's disclosure documents prior to any decision whether to acquire the product.  Information provided is general only and current at the time.