🕹Markets in Turmoil🍎

Major indices dived today as the Russia-Ukraine crisis blew cool air across sentiments. The S&P 500 sunk into correction territory as Russia moved troops into eastern Ukraine, worrying about escalating tension. 

Losses fluctuated drastically throughout the trading session- a reflection of intense uncertainty over the US sanction and how other countries will impose new sanctions on Russia. The fear is that such sanctions could reduce oil supply globally and push commodity prices to a new high. 

⛽️Sanctions effective?🧨

Since 2014, Russia has put to work around the sanctions and has lived well over it even during the 2014 annexation of Crimea despite paying a huge cost that is estimated to be around 2.5% to 3% of the GDP in a year. 

Nonetheless, analysts believe that Russia will cushion the latest sanction blow. For the past 2 decades, the country has always embarked on a prudent fiscal budget. The central bank has also been wise to accumulate substantial foreign reserves, estimated to be around $600 billion. 

On the other hand, Russia could threaten to cut oil export by half. This could send Brent oil prices to hit $150 a barrel, way higher than the July 2008 peak. 

🛎Europe: A dilemma🔭

The region is likely to be hit the most by any retaliation by Russia on oil export control, given their reliance on the country for energy supply. The crisis had already pushed natural gas prices to a high, building on solid demand and low storage in the region. Moreover, the unusually cold winter and disruption in energy supply further accentuate the problem faced in Europe. 

About 40% of Europe’s gas is derived from Russia. Hence, Pika World does not expect Europe to hit a total embargo on Russia’s energy export as it will hurt Germany the most. While President Biden aims for liquefied natural gas suppliers to cope with any shortfall from Russia, it is unlikely to be sufficient. 

Given the ongoing disputes and conflicting messages, major market indices are unlikely to continue to trend lower. However, Pika World will be cautious on accumulation along the way as our portfolio continues to hurt with significant losses for the year to date that is reaching 50%.