CIO Marketupdate Ukraine: Uncertainty dominates

The financial and commodity markets reacted immediately. In Europe, stock indices opened sharply lower with losses of up to 4 %. The oil price (Brent) jumped above 100 US dollars. On the other hand, so-called safe assets are in demand: Gold has gained almost 2 % to 1950 US dollars, 10 year US Treasuries yield 1.91 %.

The market reaction reflects uncertainty about the consequences at the political, military and economic level. It is likely that the sanctions already imposed by the EU and the USA after Russia's recognition of two self-proclaimed People's Republics in eastern Ukraine are to be tightened. The UN Security Council will meet on Thursday.

Our main focus is on the price of gas. Europe is highly dependent on Russian gas. Here we are optimistic since even at the height of the Cold War, Europe was supplied with gas from the Soviet Union.

We expect the situation in Ukraine to remain unsettled in the short term. Uncertainty about further developments will remain elevated for the time being. For this reason, the Investment Committee of VP Bank has decided to reduce risks in the portfolio. We are reducing European equities to neutral, which brings the overall equity weighting down to neutral. In our view, Europe is the most exposed region.

We also recommend reviewing the portfolio for investments with a direct link to Russia. This applies to the currency as well as to equities and bonds. Even though some of these investments have already come under pressure, new, tougher sanctions could hit the financial sector in particular. This is an incalculable risk.

Moreover, we point out that diversification in a portfolio proves its worth in these moments. For us, these elements are gold, insurance-linked securities and minimum variance equity investments. All three have so far proven their qualities.

We are keeping an eye on the situation for you and will react immediately if we consider it necessary.

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