Billions wiped off, inflation taking a massive shape and rollercoaster of currencies worldwide- Russia-Ukraine war has left the stock market deadlocked.
If you are an investor and have locked your hard-earned money in the stock market, the Russia-Ukraine war must have hit you like a gut punch.
The world is already witnessing an illegal invasion ordered against sovereign nation Ukraine by Russian President Vladimir Putin. Different parts of the nation, including the capital city of Kyiv, are being targeted in a series of explosions. While the Western countries are imposing heavy sanctions on Russia, Putin is urging the military of Ukraine to overthrow their political leaders to negotiate for peace.
Given the extraordinary circumstances of war between the two nations, financial markets witnessed the worst fall in decades in the last two days. And the reasons are obvious. The war between the two nations has affected a series of commodities- from energy to wheat and dollar bonds to safe-haven.
And the brunt of the aftermath is being witnessed by the stock market.
Inflation, impending hike in interest rates and WAR- A death recipe for market
The stock market is in real trouble. War is never a favorable situation for the financial markets. However, it has only gotten worse in the past few days due to other factors.
One biggest reason behind the market crash is the shift of investments from equity to government bonds. The term is safe haven. Investors tend to shift their investments from stocks to bonds during unfavorable situations like pandemics and wars. Russia-Ukraine war has posed exactly the situation for the market.
However, this is not all. The bigger demon is inflation due to skyrocketing oil prices.
On top of that, the U.S. government has announced its plans to hike interest rates in the near future.
It is fair to say that the stock market is currently in a deadlock situation with hardly any hope of recovering soon.
Commodity crisis due to Russian-Ukraine war
The Black Sea region- the sea route for the supply of food grains to other countries, is currently disturbed due to the war. As a result, the supply of essential grains like wheat along with fuel has boiled down to a stressful situation. Therefore, the world is at the edge of massive food inflation.
Four major exporters of grains are Ukraine, Russia, Romania and Kazakhstan. Currently, all four are overlooking a bleak situation due to disturbance in the Black Sea. Moreover, sanctions by the West against Russia are only going to make matters worse.
The timing couldn’t be worse. The world is already facing an affordability crisis due to the COVID-19 pandemic. The Russia-Ukraine war has only worsened the situation for the global economy.
All this has posed a highly unfavorable situation for the stock market.
The uncertain future of energy prices
Another factor that is making major waves in the media is energy. The West has imposed massive sanctions against Russia. However, around 35% of Europe’s natural gas comes through Russia. This natural gas passage passes through Belarus and Poland before finally reaching Germany.
Now that the war has led to heavy sanctions against Russia, prices of natural gas are set to touch record highs.
A similar case study follows for oil prices.
Russian Currency touches record low
As Russia invaded Ukraine with full-fledged military intervention, investors dumped Russian Ruble. The currency is currently at a record low.
As Putin ordered the invasion, the Russian stock exchange shut down on Thursday indefinitely. As a consequence, close to $250 billion were wiped out of the market in a single day.
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But we also have a winner!
Everyone is bearing the brunt of war. But some currencies are coming out strong. Swiss franc exchange is termed as the most significant indicator of geopolitical crisis in the Eurozone. This is because investors have witnessed Swiss currency as the safe haven for decades.
During any major crisis, traders in forex markets make no delay in relying on the Swiss currency, hence the term safe haven.
Therefore, while the war is taking a toll on investors and currencies worldwide, the Swiss currency is growing stronger with each passing day.