The war and global investing ─ reflections from the streets of Russia

Dawie Roodt
Chief economist and director: Efficient Group


Elevated levels of inflation and higher interest rates recently spooked the financial markets while the world watched with bated breath as Russia invaded Ukraine. These are two of the many factors that are currently affecting the global economy and markets.

Investors who want to successfully navigate the global investment waters need experts on their side. My recent travels to Moscow and Sochi confirmed this: investors need the leaders in global investing to help them make sense of current world events. Our first-hand experience and knowledge of the world stage distinguish us in this regard.

Here are some of my impressions and thoughts from Russia:

There is no sign of a war anywhere! There were no soldiers, tanks, or any other signs of the military. Some preparations were made on the Red Square for the World War II Victory Day celebrations of 9 May, but not much else.

The economy seems to be pumping, at least in Moscow and Sochi.

Everybody I spoke to told me business is good; all the supermarkets are fully stocked with a variety of goodies that we can only dream of. As is the case in the rest of the world, people are complaining about rising prices. The ruble (RUB) came back strongly after taking a dive just after the invasion of Ukraine in late February, when interest rates were raised sharply. Subsequently, though, interest rates were cut again, and the RUB is now trading at levels stronger than before the invasion.

The effects of the sanctions against Russia will take some time to filter through to the economy – I estimate that the Russian economy can contract by nearly 10% this year, but it’s far from being in freefall. I spoke to many Russians who are very confident that they will be able to weather any economic sanctions by the West because there are ways and means to get around them. Russia’s immense commodity wealth can also be used as a weapon to defend its economy.

“Do ordinary Russians support the war?” is a question I have been asked many times.

I don’t think this is the right question. Before I explain, remember that there are many moving parts to this conflict, as is the case with any disagreement. I think the questions we should be asking are:

  • Does the average Russian support their military forces?
  • Does the average Russian support the invasion of Ukraine?
  • Does the average Russian support Putin?

The average Russian adores their military forces and will support them wherever they are. The only reason why this war is dragging out so long is that “the Russian troops are disciplined and are showing restraint. If they wanted to, they could have taken over Ukraine long ago. Nothing can stand in the way of the Russian army.” So say most Russians…

But does the average Russian support the invasion of Ukraine? That depends. I would say most Russians support the idea that Donbas and Krim (and perhaps other areas) should be a future part of Russia. For the rest of Ukraine, I got the idea that most Russians simply do not care.

Concerning support for Putin, there are fanatical supporters as well as a few vocal haters. The supporters (and a few haters) reckon that Russia is a vast country full of diversity and that a “strong” leader is a must. Others see Putin as a mad dictator.

That said, where do I think all of this will end?

  • With or without Putin, there is no way the Russians will leave Donbas and Krim; they are part of Russia from this point going forward.
  • I do not foresee popular support for Russia to invade the rest of Ukraine. Putin may attempt to, but given Russia’s setbacks in the war so far, it may lead to his demise.
  • I don’t think Putin is as sick as some Western news outlets report. I also doubt if a palace revolution is imminent. Putin’s personal safety measures are second to none, and keep in mind that a cornered powerful man can be extremely dangerous – I am talking nuclear here… Also, Putin is not mad; he is very rational!
  • What really concerns me is that accidents happen during wars, and an accident involving Russian and NATO forces may just get out of hand. Again, I am talking about nuclear conflict.

I think the Russian invasion was wrong and a strategic mistake. Putin wanted to prevent the further expansion of NATO to the east ─ and this will now be accelerated. Putin wanted to incorporate (parts of) Ukraine into Russia. Instead, he contributed to a new Ukrainian nationalism. Putin also hugely underestimated the reaction of the West (sanctions) and hopelessly overestimated the capacity of his forces.

The most likely outcome of this conflict is a low-level civil war that will go on for a very long time. Sanctions against Russia will remain in place, certain commodity prices will stay elevated, inflation may become stagflation, global growth will suffer, and financial markets will be affected.

Under these circumstances, a good asset manager will do a regular analysis but will also keep a wary eye on global geopolitical developments. Is there a possibility that China will use the Ukrainian diversion as an opportunity to cease Taiwan?

No one has definite answers to all the questions, but we must stay alert and well-informed. We definitely live in interesting times.

Speak to the Efficient Global Investing* team today. Our credentials and results are clear and categorical.

*Efficient Global Investing is an Efficient Wealth initiative. Efficient Wealth is an authorised financial services provider, FSP 655.