Russia Invades Ukraine: Implications for Investors

Feb 2022
Mobius Capital Partners
Opinion Pieces
Some facts about Russia and Ukraine*:
  • Last year Russia’s largest foreign trade partner by far was China, with a total trade volume of nearly $141bn, followed by Germany and the Netherlands.
  • Ukraine’s largest foreign trade partners are Russia and China, followed by Germany and Poland.
  • Following announcements of harsh sanctions, including blocking major Russian banks from the SWIFT international payments system, the Russian Rouble plunged around 30% since last Wednesday, while the Ukrainian Hryvna dropped about 5% over the last two weeks.
  • Russia is the world’s second biggest exporter of crude oil, and the largest exporter of natural gas. Russia is also major producer of metals including aluminum, nickel and copper.
  • Russia is the world’s largest wheat exporter, while Ukraine is among the top five.

Russia Invades Ukraine: Implications for Investors

What appeared a very unlikely scenario only a few months ago, a war in Europe, became tragic reality last week. On Wednesday evening, many Ukrainians went to bed in their clothes with bags packed in fear of an imminent Russian invasion. Sadly, their fears were to be proven justified. Despite numerous efforts by global leaders to find a diplomatic solution, and assurances by the Russian leadership that there was no intention to invade Ukraine, western alliances are now facing an aggression against a sovereign country of over 40 million people on a scale last witnessed a century ago.

What does this mean for investors? First of all, we would like to remind our investors that MCP neither holds Russian assets nor any company with significant exposure to Russia. The current crisis will have global implications and we are already seeing the typical “risk-off” movements into gold and other safe-haven assets, coinciding with a broad-based sell-off in emerging market currencies and stock markets. 2022 had started off with a lot of uncertainty. Stock markets were already headed for a volatile first half of the year, driven by worries about high inflation, rising interest rates, supply chain bottlenecks, Covid-19 outbreaks and slowing growth. We were cautiously optimistic that we would see a phase of stabilisation in the second half of 2022. However, the war in Ukraine will probably prolong the phase of uncertainty, at least in the short term.

Russia is one of largest energy suppliers in the world. One of its pipelines bringing gas to Europe runs through Ukraine. On the back of the Russian invasion into Ukraine and expected sanctions, energy prices have spiked. Higher energy prices mean higher input costs for companies, which will then be passed on to consumers in an already high inflationary environment. In addition, higher energy prices for households will reduce consumer spending power even further, impact the growth outlook and increase the risk of the economy entering a period of stagflation. Furthermore, the above scenario will complicate central banks’ monetary policy, as the effect of planned rate hikes on inflation might be limited in such an environment and potentially further stifle growth. Furthermore, Russia is an important producer of commodities which include copper, nickel, aluminium, steel, cobalt and palladium. Sanctions could further aggravate already strained supply chains. However, so far it seems sanctions have stopped short of these sensitive areas.

Stock markets reacted strongly to last week’s news. However, as history has shown, stocks tend to recover quickly after geopolitical shocks. We have already seen some indices clawing back their losses. A lot will depend on the severity of sanctions and the length of the conflict. In our opinion, the most important thing for investors is not to panic. Long-term and mid-term investors should focus on the fundamentals of their investments, which will ultimately determine the success of their portfolio.

MCP’s portfolios of quality companies with strong capital structures have shown resilience in times of heightened volatility. We have been very careful not to take unnecessary risks and have outperformed the MSCI EM Mid Cap Index at a lower standard deviation and a lower maximum drawdown since the strategy’s inception. We sold our only investment in Russia at the end of 2021 over governance concerns, and have a strong preference for countries with lower risks and higher governance standards. Our bottom-up stock selection process has led to a strong bias for Asia, where we are finding the most interesting opportunities.

We remain bullish on the long-term prospects of our holdings. The companies we look for have strong balance sheets, low levels of debt and high profitability. In many cases their quality and competitive edge have enabled them to gain market share during the last couple of years. Furthermore, many of our companies focus on specialised components that are catering to some of the most innovative industries and trends such as AI, autonomous driving, sensor technology, renewable energy, internet of things and cybersecurity. This, we believe, will continue to drive the demand for our companies’ products. The current crisis might dampen the pace of the economic recovery in the wake of the Covid-19 pandemic, but we believe it will not stop it.

Mobius Capital Partners will be holding a webinar for professional investors on Monday, 7 March at 11 AM (GMT) to provide an update on the portfolio, strategy and performance of the Mobius Emerging Markets Fund. MCP's Founding Partner Carlos Hardenberg will also provide an outlook on emerging markets and share his views on the Russia-Ukraine conflict.

Please email Anna von Hahn at should you like to participate.

*Source: Statista/Bloomberg; Photo credit: Eugene on