How are sanctions against Russia affecting the markets?

Following the outbreak of the war in Ukraine, Western countries unanimously unleashed sanctions on the Kremlin, ranging from restricting seven Russian banks from accessing SWIFT and blocking the transfer of euros to Russia, to restrictions on industry and trade. The latest package of measures seems to foreshadow those set to come out of the European Union. Indeed, the President of the European Council, Charles Michel, stated that measures against Russian oil and gas will be needed “sooner or later.”

However, the new measures imposed on the Russian economy do not seem to have changed market sentiment. In fact, Ismael García Puente, investment manager and fund selector at MGP, says “unless they target energy, they will have a diminishing impact on the markets.” “Stock markets have disregarded the latest sanctions,” the expert stressed in an interview on Radio Intereconomía. With everything that has happened so far, equities “have become a safe haven,” especially in commodities and LATAM.

Meanwhile, the forthcoming revisions to growth in European economies point in the other direction (adjusting downwards). The Bank of Spain has already lowered growth expectations for Spain; in the expert's opinion, this “has become a widespread phenomenon throughout the continent.” Even so, as regards the Spanish economy, García Puente points out that despite the doubling of inflation expectations, “we must remember that instances of growth are higher than in the last decade.” “The economy can tolerate a high price level for the time being without affecting growth,” he adds.

The business sector, for its part, will shed light on the impact of the war on business in the upcoming quarterly results. Will it follow the forecasts for the European economy? “To expect otherwise would be naive, but the consensus among analysts has scarcely revised downwards,” the fund selector clarifies, pointing out that “the demand to rebuild inventories, the high percentage of accumulated savings, and the slower but still positive growth” continue propping up the limited downgrades in the experts’ forecasts.

Although the impact may be limited in certain markets (as is the case of US equities and, more specifically, in the energy and chemical sectors), García Puente believes that there may be attractive opportunities in companies that, in the short term, “can pass on the increase in costs to customers, have the capacity to maintain margins and, in addition, have little debt,” since “the tightening of monetary policies will make refinancing more costly.”