Russia-Ukraine War’s Global Impact: Who’s Helped, Who’s Hurt?

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Russia Ukraine War's Global Impact

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Public Fixed Income
MAR 29, 2022

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Introduction

The last two years have proven challenging for countries across the globe, especially developing economies. Emerging Markets (EM) are battling the lingering effects of COVID-19, a slowing China, and increased global inflationary dynamics, while simultaneously trying to reignite their economies with limited policy flexibility. Now, Russia has re-opened the 2014 Ukraine conflict, but this time taking it even further with an assault on the country, bringing President Putin’s threats to reality after years of warnings and conjecture. The current environment for EM is trying, and as a result we have witnessed challenging performance. However, consistent with our recent views, we believe that these cheaper valuations, disciplined policy makers, and investors searching for income and yield will serve the asset class well going forward. As such, we are committed to navigate the current environment carefully, but willing to take risk as opportunities present themselves.

Despite the small size of Ukraine’s economy in a global sense, the invasion of the country by Russia has caused macro shocks well beyond its borders. In response to an unprovoked attack on a democratically elected government within Europe, Europe and many of its allies have imposed harsh and far-reaching sanctions. The predominantly economic measures taken by western countries against Russia have been successful in causing financial strain on Russia’s economy (the eleventh largest economy in the world in terms of GDP1 ) but also caused massive upheaval in markets, global trade, and most importantly a massive shift in the geopolitical backdrop.

Europe and the broader world have enjoyed a peace dividend since the end of the cold war, but this singular event changes the existing status quo for many European countries. Their energy supplies, willingness to spend significant amounts on military spending, as well as welcoming millions of refugees from Ukraine are the initial struggles governments from Latvia to Italy are facing.