It would seem to be unlikely that Ukraine could ‘win’ a conventional war with Russia and unclear as to President Putin’s objective other than regime change in Kyiv. At present it appears to be most reminiscent of Russia’s invasion of Georgia in 2008. Ukraine is a large (population c. 44 million) civilised democracy, this has the potential to be a humanitarian disaster on a massive scale.

Stock markets were already jittery in the wake of central bank tightening, ever higher inflation prints and nervousness amongst tech issues. Russia’s aggression has led to an immediate spike in oil and gas prices along with other commodities and wheat prices, which will only add to inflationary pressures and delay any easing in the CPI prints. For now, we expect central banks to continue with their tightening as planned but are likely to err on the side of caution at the March meetings.

The quarterly reporting season in the US is nearly complete, 77% of companies have beaten earnings estimates, slightly ahead of the 5-year average. Following the warning from Netflix in January (and slump in their share price), this time we had a shocker from Meta Platforms (Facebook), which collapsed by more than 30% after warning of a loss of users as competition from TikTok grew. The NASDAQ has been highly volatile but overall is down by just 2% over these four weeks thanks to some good figures from index heavyweights, notably Alphabet and Amazon. The broader US market is down around 3%, worst hit over this period, unsurprisingly, has been the Euro Stoxx, which has fallen 7%.

We have not made any changes to the Esk Fund’s portfolio this time though many companies have reported. We consider that the quality of the holdings in the portfolio, with generally high margins and barriers to entry, is such that it can comfortably withstand a period of elevated inflation. Moves in a number of areas have been quite irrational in the current febrile conditions, we would expect this to correct over coming months. We are not holders of any oil & gas or energy companies in the portfolio, we do not like the long-term capital intensive nature of these businesses or their dependence on energy markets. In the short-term, this has hurt performance relative to markets, we do not think this will be the case in the medium to long-term.

There is still considerable uncertainty in markets. As central banks tighten monetary policy and inflation overshoots against a background of nasty geo-political developments, volatility is likely to remain as a feature of this first half. The current international disposition of the Esk Fund is shown below. The greatest exposure is to American markets and the US dollar, we do not invest in Russia or any other such countries, see chart right.

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.