Russia has attacked Ukraine with the deepest contempt for human lives and against all economic reasons. This creates uncertainty and thus a buying opportunity, Georg von Wyss writes in an essay on finews.first.
This article is published on finews.first, a forum for authors specialized in economic and financial topics.
Russia has attacked Ukraine. It looks as if Vladimir Putin wants to turn his neighbor into a vassal state, much like Belarus. We did not think this would happen. Besides being a human tragedy, economically, this war produces only losers, but apparently, Putin cares less about this than about expanding his political power.
After falling in the last weeks already, stock markets are down hard today – February 24 – because this attack is causing great uncertainty. Energy and grain prices are jumping. Russia and Ukraine are big exporters of both. The higher prices contribute to inflation worldwide. Moreover, Europe draws about 40 percent of its gas from Russia. Yet, at the time of this writing, gas continues to flow through Ukraine.
«The conflict might be over fast, which is probably Vladimir Putin’s gamble»
In a sense, it has to, as Russia has no other customer than Europe. If it wants money, it cannot cut off this supply. So at least here, Russia is behaving in an economically rational fashion. But there can be no certainty that this situation will last.
Another big issue is the length of a conflict. Tellingly, Putin has called on Ukrainian soldiers simply to go home, like Afghani soldiers did last year. But from what we have read, morale in Ukraine is quite high, and the military capabilities of its army are much greater than in the past. We must also remember that attackers need great superiority in numbers to overcome defenders.
The conflict might be over fast, which is probably Putin’s gamble. But if it turns out to belong, either in the form of a conventional or a guerilla war, that opens up a host of questions. Will Ukraine become a proxy battleground in a conflict between East and West, with the West providing support? Does the war spill over into other places? Will Putin’s willingness to put economics second lead him to attack other countries?
«Economics, especially consumption, may yet undo Vladimir Putin»
At the same time, the stability of Russia itself and its regime could become an issue. Will the Russian people tolerate the loss of lives and prosperity for the sake of – for many people – Putin’s old-fashioned and weird ideas about geopolitical influence? In an age when information travels more freely than ever before, it will be impossible for the Russian leader to pretend that he is not to blame for the destruction of Russian consumers’ aspirations to lead normal, middle-class lives and its elites to fly to their yachts in the warmer seas of the world. Economics, especially consumption, may yet undo him.
All this said, the fact remains that neither Russia nor Ukraine are important markets for most listed companies. The war will have a little direct impact on their business. Moreover, energy and grain markets will evolve to mitigate the impact of possibly reduced Russian supply. In the short term, there are some important indirect effects, of course. Weak financial markets lower the earnings power of asset managers, which also manage Russian money. We don’t know how much, however, and whether sanctions might force it out of the banks or lock it there.
«The sad fact is that wars tend to be good for investors»
In every case, however, the focus of our analysis is on whether the companies can adapt – which is to say, whether the war will affect its long-term earnings power. This is not the case for most western companies and our strategy is therefore to use the market disruption – the climate of fear – to buy shares in especially undervalued companies. We recommend doing the same.
The sad fact of the matter is that wars tend to be good for investors – not because they produce profit-making opportunities for companies, but because stock prices overreact to the uncertainties that new wars create.
Georg von Wyss co-founded the independent asset manager BWM at the end of 1997 together with Thomas Braun and Erich Müller (the latter two still active in the company at that time). Over the years, the company has developed into a leading international brand in so-called value investing. Von Wyss has been a financial analyst and client advisor since 1993 and was previously a financial journalist. He holds an MBA from the Amos Tuck School of Business Administration at Dartmouth College.
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