Ukraine crisis is Russian roulette for investors
Is it a cheap buying opportunity or should the whole region be avoided? Simon Read asks the experts
Simon Read is Personal Finance Editor at The Independent. He edits the Saturday Your Money section and writes the Daily Money column and Wednesday’s Midweek Money section in i newspaper. He also writes for the news and business pages of the Independent and i newspaper and is a regular money commentator on TV station London Live. He has won numerous awards including Consumer Finance Journalist of the Year.
Friday 07 March 2014
When markets fall, it's a natural reaction to think of fleeing and cutting your losses. But seasoned investors know that when people panic, there are often plenty of cheap buying opportunities.
The continuing crisis in Ukraine had a marked effect on markets this week. On Monday it looked like the start of a financial disaster, with the Footsie falling by 101 points. A degree of recovery on Tuesday saw things settle down for the rest of the week, with markets watching and waiting as events unfold. But what about those with investments in Ukraine or Russia? Now is the time to decide whether to carry on or cash out.
What do the experts think? "The political risk of the Ukraine outweighs the potential likely returns," said Slim Feriani, chief investment officer of Advance Emerging Capital. "Russia, however, is a different story; the country holds strong current account and foreign exchange surpluses, as opposed to the 'fragile five' [Indonesia, South Africa, Brazil, Turkey and India], and we think that current valuations represent a decent entry point for patient long-term investors."
Matthias Siller, fund manager of Baring Emerging Europe, said: "Ukraine's economy remains weak with further help required for it to meet its external obligations. Looking ahead, presidential elections are scheduled in Ukraine for 25 May.
With Crimea's parliament also having called a referendum on the autonomous region's future, he added, there is too much uncertainty around Ukraine. "In my view, until the political direction of the country becomes clearer following the elections, the situation will remain in flux. This is likely to be a protracted situation, with so much now depending on the new government after the elections."
Asoka Wöhrmann, co-chief investment officer of Deutsche Asset & Wealth Management, believes the investment fallout could spread well beyond Ukraine: "The entire situation bodes bad – especially for Russian assets but also for the entire region of Eastern Europe including Turkey, as 12 per cent of Crimeans are Tatars who have historical ties with Turkey and dislike Russia.
"So Russian and Ukrainian asset markets are likely to remain under selling pressure," he predicted.
In short, as Dr Feriani said: "Investing in emerging and frontier markets requires investors to be patient and long term."
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