Ukraine back to the fore for markets

An attempted coup, real or not, has all eyes in markets back on the war and its implications for Russian politics.

The Wagner group’s brief march on Moscow, which fizzled out almost as soon as it began over the weekend, has brought the war in Ukraine back into sharp focus after a period of entrenched conflict that had allowed markets to concentrate elsewhere. Certainty about the weekend’s events and their implications is in short supply, and the situation is still fluid, but it is clear that tail risks in either direction have risen. 

Despite the apparent swift resolution of the ‘coup’ in Putin’s favour, succession in Russia is now a live question, with the potential to shape the geopolitical backdrop over the coming months and years. We will be watching closely to understand the unfolding events and the response from the world’s major powers. 

Markets for now are unruffled and from an asset allocation perspective, we have not changed our positioning. We remain defensive against a backdrop of challenging macroeconomic dynamics, and while markets have shown resilience so far through 2023 we believe challenges lie ahead. We are monitoring the situation in Russia, drawing on the perspectives of Fidelity’s global bottom-up research team as well as macroeconomic and top-down analysis, but for now we remain cautiously positioned: underweight equities and credit, and overweight government bonds. 

Commodity markets have so far remained calm, but were the situation in Russia to deteriorate, we believe energy and agricultural commodity markets could respond, with the knock-on effect being greater inflation pressures globally. We are therefore considering tactical trades that fit the various possible scenarios, and our broad asset allocation view remains focused on protecting portfolios as the situation evolves.