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Note from the MD: Investors nervous as Russian invasion fears mount, sanctions announced

February 23, 2022

Note from the MD: Investors nervous as Russian invasion fears mount, sanctions announced

It’s been a tense couple of days as Russia’s forces look to make their way into Ukraine. It now seems to be just a matter of the extent of their invasion and if they head towards the capital.

It’s been a tense couple of days as Russia’s forces look to make their way into Ukraine. It now seems to be just a matter of the extent of their invasion and if they head towards the capital.

Markets seem to be more worried about inflation and interest rates and we’ve seen this hitting technology stocks. Last Friday we traded on our growth technology versus value dispersion investment early as volatility started to move.

Today, as the conflict escalates, the market is trading slightly up and implied volatility has come slightly off.

Both the UK and the US have already imposed sanctions on the renegade superpower, with more expected in coming days.

Already these deteriorating conditions are rippling through markets. Oil surged on the news, with Brent crude reaching its highest price since 2014 amid fears the conflict would see major producer Russia turn off its taps to the West.

Stocks, on the other hand, dipped as the full story began to come to light. The ASX 200 gave up 72.3 points to end the day down 1%, with more than three-quarters of the index finishing in the red.

XJO implied volatility (IV) has risen from February lows of 13.9% to current levels around 18.5%, and with geopolitical tensions as high as they currently are, these relatively high IV levels may continue into the coming weeks. 

The market has managed to close below the major support level at 7200 yesterday for the first time since 9th February. We view current support around 7130 and current resistance around 7200. 

Although the Russia-Ukraine situation is undoubtedly the biggest story of the week (and not just for markets), there’s plenty more happening in the headlines that’s given investors reason to think about their portfolios.

In the energy sector alone, we’ve had two massive news stories – Origin Energy announced plans to close Australia’s largest coal-fired generator seven years ahead of schedule and Atlassian co-founder Mike Cannon-Brookes tried to buy AGL with a similarly eco-conscious strategy for the business in mind.

Meanwhile, reporting season continues to deliver a constant stream of news.

Coles (ASX: COL) managed to eke out a 3.16% gain after its half-year results revealed EBIT and NPAT were both down on the prior corresponding period.

Wesfarmers saw net profits after tax drop 14.2% for the half, which managing director Rob Scott described as the “most disrupted period” the business has experienced since the outbreak of the pandemic.

With more big names due to report this week – including Qantas (ASX: QAN), Kogan (ASX: KGN) and ZipCo (ASX: Z1P) – it’s bound to be a busy run into the weekend. 

As the boots on the ground trade Russian soil for Ukrainian, expect to see the human cost of this conflict but the effect on the market is yet to be seen. More eyes seem to be on Powell than Putin. For now though, all we can do is watch, offer what support we can, and consider how our portfolios fit into this broader context.

One investor who searches for overlooked investment opportunities is Peter Johns, managing director at Westferry Investment Group and a small/microcap investment specialist.

Peter will be joining us this Friday, 25th February, at 12pm (AEDT) for The Insider: Meet the Fund Manager webcast, where he’ll provide insights into how and why he invests in relatively illiquid companies with lower trading volumes. He’ll also discuss some of the key stocks from The Westferry Fund’s portfolio that he considers ‘missed opportunities’ by most investors. To join us for this session, click here.

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Any advice provided by Reach Markets including on its website and by its representatives is general advice only and does not consider your objectives, financial situation or needs, and you should consider whether it is appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) including the Privacy Statement and any relevant Product Disclosure Statement or Prospectus (if one is available) to understand the features, risks and returns associated with the investment.

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