Worse yet to come for global markets, with no de-escalation in sightAfter a pause following a volatile trading pattern over the past few days, tracking the ebb and flow of news on the Ukraine border conflict, analysts have turned cautious amid Russia's military operation and said downside risks remain for financial markets over the coming days.The risk-off sentiment is set to dominate again as Western allies expand the list of sanctions."Clearly, the situation in Ukraine is incredibly fragile, and investors remain nervous that Russian authorities lay claim to broader areas of the Donbas than those currently held by rebels and potentially now by the Russian military.
The market reaction to the first tranche of Russian sanctions has been relatively sanguine so far," said Chris Turner, global head of markets at ING."Following yesterday's muted sell-off, pessimism regained the upper hand yesterday, and US stocks fell more forcefully.
Global financial markets have taken the first tranche of Russian sanctions in their stride.
Yet the situation remains fragile," he added.Risk assets like world stocks dived, while the safe-havens such as the Japanese yen, Swiss franc, the US dollar, gold skyrocketed as Ukraine stated that Moscow had launched a full-scale invasion.Several billions of dollars have been shaved off Russian and Ukrainian assets recently.
On Thursday, Russia's largest exchange group, Moscow Exchange, suspended "trading on all of its markets until further notice."After Russian President Vladimir Putin announced "a special military operation" against Ukraine, that move came.Brent oil surged to $100 per barrel for the first time since 2014.
Bloomberg, in a report, said the world economy's inflation shock set to worsen from Oil at $100, representing a double-blow to the world economy by further denting growth prospects.Indian equity bourses plunged sharply, tracking the steep fall in Wall Street shares."Increased geopolitical and inflation risks have already forced and will force market participants to build in higher discount rates for valuations.
This poses downside risks to elevated valuations of the market, expensive 'growth' stocks and 'narrative' stocks," noted analysts at Kotak Institutional Equities."Our earlier hope of time correction in the market resulting in higher earnings yields offsetting higher bond yields may get dashed with possible price correction in the market if global geopolitical issues were to escalate," they added.