Far reaching consequences
There is a war in Europe. The situation in Ukraine is dramatic. Reliable predictions about further developments are hardly possible at the moment; instead, the situation must be constantly reassessed.
In the last few days, the financial markets have reacted, sometimes violently, to new developments. Good news has been scarce.
Nevertheless, the European stock markets reacted with some gains to a media report according to which the EU is to issue new bonds to finance the energy supply and the increase of the defense budgets in the 27 member states. This implies that investors have not yet thrown in the towel.
However, this financial package alone will not be enough for prices to calm down. An end to the war is not yet in sight. The consequences will be felt far beyond the countries involved and Eastern Europe. Be it with a view to security and energy policy, be it in the economy.
The sharp rise in energy prices is fueling inflation. Filling up at the pump is draining the wallet, and all the more so as many people return to the office. This is not an easy situation for central banks, as concerns about inflation are now compounded by recession fears.
In our view, the risks in equity markets are dominant in the short term. Therefore, the Investment Committee decided at its monthly meeting to further reduce the position in European equities. So we are in fact tactically lowering the equity quota from neutral to underweight. We are thus reaffirming the already defensive portfolio orientation.