<!-- wp:paragraph --><p><strong>David Crosoer, Chief Investment Officer at PPS Investments</strong></p><!-- /wp:paragraph --><!-- wp:paragraph --><p>The world remains on edge following the Russian invasion of Ukraine. Unsurprisingly, financial markets have reacted with large price moves, as investors scramble to assess the wider implications. </p><!-- /wp:paragraph --><!-- wp:paragraph --><p>Global equities fell sharply on the news that Russia had launched a full-scale invasion of Ukraine, only to sharply recover hours later when it became clear that Europe would not impose sanctions that will jeopardize its own economic recovery, nor that NATO will get directly involved. Over the weekend, Europe imposed harsher sanctions than the market was anticipating, and the situation remains fluid.</p><!-- /wp:paragraph --><!-- wp:paragraph --><p>The critical issue for investors is how disruptive the invasion will be for the functioning of the global economy. Russia will be increasingly isolated, especially as western policymakers look to damage the Russian financial sector with SWIFT sanctions on Russian banks. A total shut-off (which is not yet on the cards) will impact Russia's ability to export gas to Europe and there will likely be a knock-on effect on energy prices. There is a risk that Russia halts gas exports to Europe as a counter sanction, again having a similar impact on energy prices.&nbsp;</p><!-- /wp:paragraph --><!-- wp:paragraph --><p><strong>Uncertainty remains</strong></p><!-- /wp:paragraph --><!-- wp:paragraph --><p>There is much that is still uncertain, including how the Ukrainian resistance to Russian aggression will unfold, and whether Russia will only limit its aggression to Ukraine. More aggressive sanctions from the West or counteraction from Russia that spike energy prices further and derail the European economic recovery are still possible and will depend on how events unfold over the next few days and weeks.&nbsp;</p><!-- /wp:paragraph --><!-- wp:paragraph --><p>The invasion of Ukraine is a pivotal moment in post-war politics and will have far-reaching geopolitical consequences. In the short-term, however, its economic impact outside of Russia might be more limited, especially if European energy markets are not severely disrupted, and monetary policy from the ECB and US Federal Reserve remain more accommodative for longer.&nbsp;</p><!-- /wp:paragraph --><!-- wp:paragraph --><p><strong>Assessing the risks</strong></p><!-- /wp:paragraph --><!-- wp:paragraph --><p>To assess this event’s possible impact, we’ve looked at prior geopolitical events on equity markets.</p><!-- /wp:paragraph --><!-- wp:image {"id":148459,"sizeSlug":"full","linkDestination":"none"} --><figure class="wp-block-image size-full"><img src="https://cover.co.za/wp-content/uploads/2022/03/Screenshot-2022-03-03-at-10.34.30.png" alt="" class="wp-image-148459"/></figure><!-- /wp:image --><!-- wp:paragraph --><p>While it's key to note that each previous&nbsp;geopolitical&nbsp;event was only one input in the market return at that point in time, a cursory reading suggests that&nbsp;an instant negative impact&nbsp;is derived when a specific geopolitical event occurs, but the market typically recovers over time.</p><!-- /wp:paragraph --><!-- wp:paragraph --><p>On a look-through basis on the PPS funds, our managers have very limited (less than 1%) exposure to Russian equities, which have sold off materially, but managers are unlikely to be buying more given the elevated risks associated with Russia at present.&nbsp;</p><!-- /wp:paragraph --><!-- wp:paragraph --><p>More generally, we have not reduced global equities through last week’s volatility, but this is something we continue to assess on an ongoing basis.&nbsp; Extreme price moves can provide our managers with opportunities, especially if certain shares are indiscriminately sold, but in the short term, risks to the global economic recovery have clearly increased, and it is far from clear whether the crisis will be contained.&nbsp;</p><!-- /wp:paragraph --><!-- wp:paragraph --><p>At times of extreme uncertainty, it is worth remembering markets can respond in unexpected ways and deviating materially from one’s long-term plan can have negative consequences. Investors should expect financial markets to remain volatile, even if the conflict will ultimately have a limited impact. For investors with at least a medium-term investment horizon, and diversified portfolios, sticking the course is often the most appropriate response.&nbsp;&nbsp;</p><!-- /wp:paragraph -->