Goldman Sachs: Russia’s invasion of Ukraine will deal bigger blow than Crimea annexation

The blow to stock markets from a possible Russian invasion of Ukraine will be greater than the effects of the annexation of Crimea in 2014. This is what Goldman Sachs’s chief international market strategist Peter Oppenheimer told CNBC.

Global stock markets plunged on Monday as fears of a possible Russian invasion intensified, with several countries urging their citizens to leave Ukraine.

US President Joe Biden’s National Security Adviser Jake Sullivan warned on Sunday that a Russian invasion could take place “at any time”, with Ukraine demanding a 48-hour meeting with Russia.

Fears of a Russian invasion of Ukraine lead to significant losses in the stock markets on Monday, with the pan-European Stoxx 600 index falling significantly (1.7%). The German DAX index, due to the country’s large exposure to Russian gas, recorded a fall of 2% on Monday, reminiscent of the decline of 2014.

Oppenheimer even points out that volatility in European stocks will remain until the uncertainty regarding the geopolitical situation in Ukraine subsides.

Wall Street futures also foreshadow significant losses, while the Asia-Pacific markets also closed in negative territory. Meanwhile, oil prices have soared to a seven-year high,

“If we look at some of the recent events – for example the annexation of Crimea – we think it pushed the risk premium about 20 basis points higher, which had an impact of about 5% on the stock market, and the blow is likely to be bigger,” he said. Oppenheimer, speaking on CNBC’s “Street Signs Europe” show on Monday.

“Therefore, the kind of moves we see – perhaps an adjustment of risk premiums between 20 and 40 basis points – that on their own could lead to a decline in the stock market by more than 5% seems reasonable.”

The blow of the Crimea

In February and March 2014, Russia invaded and annexed the Crimean peninsula, sparking international outcry and a wave of economic sanctions, with military experts likening the massive concentration of Russian troops on the border with Ukraine in recent weeks. which preceded the then invasion.

“When Russia moved against Ukraine in the first half of 2014, the economic climate in the Eurozone shook slightly,” said Holger Schmiding, chief economist at Berenberg.

“Real GDP growth slowed from 0.4% on a quarterly basis in the first quarter of 2014 to 0.2% in the second quarter, before recovering to 0.5% in the third quarter. Of course, the temporary setback may be more intense this time “, adds the Berenberg economist.

Schmiding points out that while Russia is a powerful military power with enormous economic potential, it is not yet a major market for Europe, with Germany exporting just 1.9% of its goods to Russia versus 5.6% to Poland. .

“In relation to all the other factors that will affect the economic performance of the Eurozone this year (decline of the Omicron mutation in the coronavirus, gradual easing of supply chain problems, increase in interest rates by the Fed), some losses from inactive trade with Russia “As a result of sanctions and ‘retaliation’, it is likely to have a negligible impact on Europe ‘s growth prospects after the first two months,” he added.

As a result, Berenberg expects European stock markets to recover soon after a temporary setback that would trigger any possible Russian invasion.

“Twin problems”

International markets have been battered by rising volatility since the beginning of the year, and suffered another “blow” at the end of last week after the data on the “explosion” of inflation in the US, which sparked concerns that the Federal Reserve may be forced to increase interest rates at a more aggressive pace than expected in the coming months.

Meanwhile, the investor confidence index released on Monday by the online stock company Hargreaves Lansdown showed a significant decline between January and February.

Senior investment and market analyst Susanna Streeter notes that the drop in confidence is most likely due to the “twin problem” of the impending invasion and price spike.

“As consumers prepare for a new economic downturn as a result of the burden on households and the rising cost of goods, transport and labor from retailers to the prices of goods and services, the possibility of war in Europe intensifies fears.” , explains Streeter.

He added that “a new surge in gas prices in Europe is expected in the event of a conflict, which will further increase the cost of living and this could affect consumer confidence.”