While first-order consequences of the war can be forecast and managed to some degree, its second- and third-order consequences may be far more impactful and present significant long-term uncertainty to economies and financial markets.
The supply-chain disruptions resulting from the war in Ukraine and sanctions against Russia are far-reaching and likely to have inflationary consequences in a world already struggling to contain price pressures. Stagflation—weak economic output and high inflation—is a potential result.
Geopolitical discord is a reminder that oil, the world’s most consumed commodity, has value as a potential geopolitical hedge and that energy security is paramount to government interest.
- In an uncertain world, we believe it’s important to consider investments simultaneously for opportunity and for ballast.
A few weeks into the war in Ukraine, the West has remained steadfast in its commitment to avoid putting boots on the ground in eastern Europe. Instead, it has chosen to wield its economic might to isolate Russia from the global economy.
Russia—including its banks, businesses and select individuals—has been targeted with unprecedented sanctions intended to cripple both the war effort and morale on the home front. Meanwhile, billions of dollars, euros,
pounds, kroner and other currencies have been allocated to the Ukrainian defense effort and to provide humanitarian aid for its people.
Though Ukraine and Russia remain the sole adversaries on the battlefield, the world is at war right now, and the reverberations of this conflict necessitate a reassessment of potential investment outcomes. The Washington-led consensus that characterized the late 1990s has given way to a far more complex geopolitical tapestry and introduced the type of byzantine uncertainty that we believe reflects the “true” risk of investing. The periodic emergence of such uncertainty is among the reason First Eagle’s Global Value team prioritizes diversification across economic sectors and geographies and holds portfolio ballast in assets like gold.
Sanctions Bite Quickly, on Both Sides
In response to its invasion of Ukraine, unprecedented sanctions have been imposed on Russia by more than 30 countries representing over half of the global economy.1 These measures have severely restricted the financial activities and operations of Russia’s politicians and oligarchs, its central bank and its prominent commercial banks, and critical state-owned and private-sector companies.
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