Since Russia invaded Ukraine last week, global stock markets have been volatile. But fears of a stock market crash are receding as stocks rebound. Since Wednesday, 23 February, the US S&P 500 index has gained 3.8%. Over the same period, the UK FTSE 100 index has dipped 1.8%. On the surface, it seems that investors are relatively unperturbed by the financial risks of a drawn-out European war. However, digging deeper reveals some chaotic movements in various asset prices. Here are four crazy price movements that I’ve spotted during this troubled week.
1. Oil and gas prices soar
Russia supplies around 11% of the world’s oil and 17% of the world’s natural gas. As buyers rush to purchase energy supplies from non-Russian producers, energy prices have soared. The price of a a barrel of Brent crude oil hit a near-decade high of $119.84 earlier today. Meanwhile, wholesale natural gas prices in Europe neared €200 per megawatt hour, a record high. Of course, steeply higher energy prices mean higher inflation and lower growth. These could crimp company earnings, helping to fuel a future stock market crash.
2. Stock market crash: two London shares implode
A stock market crash — or bear market — is defined as a 20%+ fall from a previous peak. Two London-listed Russian firms have seen their share prices do this and far more over the past week. Last Friday, I admitted that I was wrong earlier and that two FTSE 100 Russian miners — Evraz and Polymetal — were now uninvestable to me. Since I wrote this, the Evraz share price has crashed from 205.1p to 51.94p today, a collapse of almost three-quarters (-74.7%). Likewise, Polymetal’s share price has nosedived from 728p to 205.3p, crashing 71.8%. I’m relieved that I didn’t take a speculative punt on either of these two stocks.
3. Many Russian assets are effectively worthless
Yesterday, I watched some of the most brutal price moves I’ve seen in 35 years as an investor. London-listed depository receipts (LDRs) — one way to buy shares in foreign companies — displayed unbelievable volatility. LDRs in Russia’s largest bank, Sberbank, collapsed to just 0.1 US cent in London. At their 52-week high, they fetched $21.64. It was a similar story for other Russian LDRs. Today, these stocks are effectively worthless, because the London Stock Exchange has suspended trading in 27 Russia-related securities (PDF). Oh dear.
4. A brutal stock market crash
Last Thursday, as battle began, the Russian stock market caved in. After opening, the RTS Index of 50 major stocks promptly crashed by 50%. Now that’s what I call a proper stock market crash. This index then rebounded to close down 28%. It rose again on Friday, but the Russian exchange has been closed ever since. If or when the Russian bourse reopens, I expect stock prices to go into meltdown. As two Financial Times contributors wrote this week, “Money isn’t an asset. It’s a privilege”. And when you get cut off from the global financial system, how much are your money and assets truly worth? Very little at this time, I suspect.
What are the lessons here? First, geopolitics doesn’t often play a big role in financial markets, but when it does, the impacts can be huge. Second, a stock market crash can come out of the blue, as seen in Russia last week. Third, when volatility spikes, I keep my portfolio well-diversified, de-risked and highly liquid — and ready for buying opportunities!
