Q1 2022 Review: Russia Invasion Causes Global Shock

Key Takeaways

  • Russia’s invasion of Ukraine in late February caused a global shock. The grave human implications fed through into markets, with equities declining and bond yields rising as a result of a decline in prices.
  • Commodity prices soared given Russia is a key producer of several important commodities including oil, gas, and wheat. This contributed to a further surge in inflation as well as supply chain disruption.
  • Chinese equities were negatively affected by renewed Covid-19 outbreaks, leading to new lockdowns in some major cities.

United States

US stocks declined in Q1. Russia’s invasion of Ukraine drew widespread condemnation and elicited a range of strict sanctions from the US and its allies. President Biden targeted what he termed “the main artery of Russia’s economy” by banning Russian oil imports.  The average U.S. price of gasoline shot up 79 cents over the past two weeks to a record-setting $4.43 per gallon. The new price exceeds by 32 cents the prior all-time high of $4.11 set in the 2008 crisis. The invasion amplified existing concerns over inflation pressures, particularly through food and energy, although US economic data otherwise remained stable. The US unemployment rate dropped from 3.8% in February to 3.6% in March. Wages continue to rise, but have not yet matched the rate of headline inflation.

The annual US inflation rate, as measured by the consumer price index, hit 7.9% in February. The Federal Reserve (Fed) raised interest rates by 0.25%, with calls from within for more aggressive tightening. Further hikes are expected through the rest of 2022. Energy and utility companies were amongst the strongest performers in relative terms over the month, outperforming a falling market with modest gains. Technology, communication services and consumer discretionary were amongst the weakest sectors.


Eurozone shares fell sharply in the quarter. The region has close economic ties with Ukraine and Russia, otherwise known as Europe’s breadbaskets. The reliance on Russian energy commodities has to a spike in energy prices and caused some fears about security of supply, driving countries from continental Europe to find alternative energy source. Over the quarter, energy was the only sector to register a positive return. The steepest declines came from the consumer discretionary and information technology sectors. Worries over consumer spending led to declines for stocks such as retailers, while the war in Ukraine also exacerbated supply chain disruption, hitting the availability of parts for a wide range of products. In response to rising inflation, the European Central Bank (ECB) outlined plans to end bond purchases by the end of September. Data showed annual eurozone inflation at 7.5% in March, up from 5.9% in February.

Global Bonds

Financial markets were volatile over the quarter. There was a short-lived rotation toward safe haven assets as the war began, but investors appeared to focus overall on inflationary pressure that is high and still rising. Government bond yields rose sharply whilst bond prices and yields move in opposite directions. Central banks were surprisingly hawkish and markets priced in a faster pace of monetary normalisation. The extent of yield moves differed across markets. The US Treasury market is in the midst of one of its worst sell-offs on record, but moves were less pronounced in core Europe and the UK.

United Kingdom

UK equities were resilient as investors began to price in the additional inflationary shock of Russia’s invasion of Ukraine. Large cap equities tracked by the FTSE 100 index rose over the quarter, driven by the oil, mining, healthcare and banking sectors. Strength in the banks reflected rising interest rate expectations. The Bank of England moved to hike rates ahead of other developed market central banks.

As the quarter progressed, some of the more traditionally defensive sectors advanced up the leader board. Intermittent fears of a global recession, however, drove periodic sell-offs in some of these “safer” stocks too. Market volatility rose given the additional uncertainty related to the Russia/Ukraine conflict.

The Bank of England increased its official rate by a combined 50 basis points (bps) with a further two consecutive 25 bps hikes on top of December’s 0.15% increase. According to the Office for Budget Responsibility (OBR), UK consumer price inflation is set to peak at close to 9% this year. The OBR published its new forecast for the Consumer Prices Index (CPI) alongside the Spring Statement at the end of the quarter. It now expects CPI to hit 8.7% in Q4 2022 (previous forecasts had been to peak at 4.4% in the second quarter of 2022) before falling back in Q1 2023.

Emerging markets

Emerging market (EM) equities were firmly down in Q1. The US and its Western allies responded with a raft of sanctions following Russia’s launch of a full-scale invasion of Ukraine. Commodity prices moved higher in response to the war, raising concerns over the impact on inflation, policy tightening and the outlook for growth.

Egypt, a major wheat importer, was the weakest market in the MSCI EM index, due in part to a 14% currency devaluation relative to the US dollar. China lagged by a wide margin as daily new cases of Covid-19 spiked, and lockdowns were imposed in several cities, including Shanghai. Regulatory concerns relating to US-listed Chinese stocks also contributed to market volatility. Poland, Hungary and South Korea also underperformed.

Conversely, the Latin American markets all generated strong gains, led higher by Brazil. Other EM net commodity exporters posted sizeable gains, including Kuwait, Qatar, the UAE, Saudi Arabia and South Africa. Russia was removed from the MSCI Emerging Markets Index on 9 March, at a price that is effectively zero.


The S&P GSCI Index achieved a strong return in the first quarter of 2022, driven by sharply higher prices for energy and wheat following Russia’s invasion of Ukraine. Energy was the best performing component of the index, with strong price gains for gas oil, natural gas and heating oil amid rising global demand for energy and fears of supply curbs as a result of the Ukraine crisis.

Within the agriculture component, wheat, Kansas wheat and corn all recorded sharp price gains on fears that supplies could be hit by the conflict (Russia and Ukraine account for around 30% of global wheat exports). Within industrial metals, the price of nickel was sharply higher in the quarter. Aluminium and zinc prices were also significantly ahead in the period. With precious metals, gold and silver achieved small gains over the quarter.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Local Market

During the first quarter of 2022, the MSE Equity Index plunged by 7.7%. This negative performance was mainly driven by Simonds Farsons Cisk plc where we have seen the price decrease by 17.1%, followed by a 14.4% decline in Bank of Valletta plc shares . On the other hand, only five equities performed positively over Q1, with the best performers including; MIDI plc and the new listed equity, M&Z plc.

Looking at the local fixed income movements over Q1, the MSE Corporate Bonds Total Return Index closed 1.3% lower followed by a 6.9% decline in the MSE Malta Government Stock Index.


Article Sources: Schroders Insights and Malta Stock Exchange

This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]