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Wall Street analysts share hedging tactics as tensions rise between Russia and Ukraine

A serviceman of the Armed Forces of Ukraine takes part in tactical exercises at the training ground in the Rivne region of Ukraine on February 16, 2022.

The press service of the President of Ukraine through Reuters

Geopolitical tensions have affected, among others, assets across the spectrum oil and natural gas, wheat, at Russian ruble and safe havens such as gold, government bondsJapanese Yen and Swiss Franc.

Philip Lisibach, chief global strategist at Credit Suisse, told CNBC earlier this week that any confirmed de-escalation would give a boost to risky assets after a period of uncertainty and volatility.

“If we have, say, a solution to the geopolitical problems we face now, I would imagine that the global economy will rest, risky market elements can certainly recover, cyclicality and trade in value probably have to do. Well, and especially European stocks that have come under pressure, we believe that they may continue to exceed the figures, so we will, of course, consider this perspective, “said Lisibach.

“Common geopolitical barriers”

Given the wide range of possible outcomes of the current confrontation, investors are reluctant to teach a baseline scenario, opting instead for careful portfolio hedging to mitigate the potential risks of reducing the Russian invasion while capturing some benefits in the event of de-escalation.

“We rarely look for a position for significant geopolitical risks because it is so opaque. However, we have some common geopolitical hedges in the portfolio, mainly gold and, depending on the source of risk, some oil risks, and of course some government bonds, albeit with a reduced maturity, ”said Anthony Rayner, manager on several assets of Premier Miton Investors.

Bhan Baweja, chief strategist at UBS Investment Bank, said earlier this week that, with the exception of energy and Russian assets, markets did not actually assess the high risk.

“We’ve seen stocks break off a bit, but if you look at consumer durables – because it’s one sector or sub-sector that will definitely be affected by weaker growth and higher inflation – in Europe this sector works much better than there is. in the United States, ”he said.

Baveja added that the high-yielding US debt is also not available to Europeans, while the euro remains relatively stable.

Markets are tracked “Book of Games of 2014”, Bawei suggested when Russia first invaded Crimea and the subsequent imposition of sanctions against Russia over the summer.

“During this period, some parts of CEE FX actually affected, oil rose slightly in the first iteration, fell in price in the second, so not much happened with the shares, so it actually became a fairly local event,” Bawei told CNBC on Tuesday.

“This time it seems a lot more serious, but I don’t think investors want to completely change their mindset and probably want to look for hedging instead of completely changing their core portfolio.”

FX is considered the best hedge

With regard to hedging, Bawei suggested that due to central bank speculation, the volatility of stocks and bonds is already high, investors should pay attention to foreign exchange markets, where volatility is still relatively low.

“As in 2014, I would look at the CEE currency (Central and Eastern Europe), places like the dollar-pole (zloty) or the Czech-dollar (krona), for hedging,” he said.

“Russian assets themselves have moved a lot, so they value energy along with energy, which also means that if the situation improves, then you really shouldn’t see global stocks see significant relief from that, you should see Russian assets go . rises and energy goes down ”.

If the situation worsens, Baveja has offered to hedge the currency rather than buying defensive stocks or preferring US assets to Europe.

“If we have to do it as part of promotions, we think DAX and European banks are probably the best hedges, ”he added.

Although stock markets in Russia and around the world are still sensitive to geopolitical developments, the ruble has remained relatively stable at around 75 to the dollar, despite some volatility.

Luis Costa, head of CEEMEA’s currency and interest rate strategy at Citi, told CNBC on Thursday that the ruble’s flow is likely to make it the most sustainable class of Russian assets, and high energy and gas prices indicate a strong current account surplus in Russia.

“And let’s not forget that Russia was buying currency, they were buying dollars as a derivative of fiscal law, and they stopped buying dollars about a month ago to support the currency,” Costa said.

“This makes natural flows in the ruble even more positive for the currency, so we believe that in the whole group of assets ruble risk, Russian risk, credit, rates, bonds and currency currency will remain the most stable part of the puzzle here.”

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Wall Street analysts share hedging tactics as tensions rise between Russia and Ukraine

A serviceman of the Armed Forces of Ukraine takes part in tactical exercises at the training ground in the Rivne region of Ukraine on February 16, 2022.

The press service of the President of Ukraine through Reuters

Geopolitical tensions have affected, among others, assets across the spectrum oil and natural gas, wheat, at Russian ruble and safe havens such as gold, government bondsJapanese Yen and Swiss Franc.

Philip Lisibach, chief global strategist at Credit Suisse, told CNBC earlier this week that any confirmed de-escalation would give a boost to risky assets after a period of uncertainty and volatility.

“If we have, say, a solution to the geopolitical problems we face now, I would imagine that the global economy will rest, risky market elements can certainly recover, cyclicality and trade in value probably have to do. Well, and especially European stocks that have come under pressure, we believe that they may continue to exceed the figures, so we will, of course, consider this perspective, “said Lisibach.

“Common geopolitical barriers”

Given the wide range of possible outcomes of the current confrontation, investors are reluctant to teach a baseline scenario, opting instead for careful portfolio hedging to mitigate the potential risks of reducing the Russian invasion while capturing some benefits in the event of de-escalation.

“We rarely look for a position for significant geopolitical risks because it is so opaque. However, we have some common geopolitical hedges in the portfolio, mainly gold and, depending on the source of risk, some oil risks, and of course some government bonds, albeit with a reduced maturity, ”said Anthony Rayner, manager on several assets of Premier Miton Investors.

Bhan Baweja, chief strategist at UBS Investment Bank, said earlier this week that, with the exception of energy and Russian assets, markets did not actually assess the high risk.

“We’ve seen stocks break off a bit, but if you look at consumer durables – because it’s one sector or sub-sector that will definitely be affected by weaker growth and higher inflation – in Europe this sector works much better than there is. in the United States, ”he said.

Baveja added that the high-yielding US debt is also not available to Europeans, while the euro remains relatively stable.

Markets are tracked “Book of Games of 2014”, Bawei suggested when Russia first invaded Crimea and the subsequent imposition of sanctions against Russia over the summer.

“During this period, some parts of CEE FX actually affected, oil rose slightly in the first iteration, fell in price in the second, so not much happened with the shares, so it actually became a fairly local event,” Bawei told CNBC on Tuesday.

“This time it seems a lot more serious, but I don’t think investors want to completely change their mindset and probably want to look for hedging instead of completely changing their core portfolio.”

FX is considered the best hedge

With regard to hedging, Bawei suggested that due to central bank speculation, the volatility of stocks and bonds is already high, investors should pay attention to foreign exchange markets, where volatility is still relatively low.

“As in 2014, I would look at the CEE currency (Central and Eastern Europe), places like the dollar-pole (zloty) or the Czech-dollar (krona), for hedging,” he said.

“Russian assets themselves have moved a lot, so they value energy along with energy, which also means that if the situation improves, then you really shouldn’t see global stocks see significant relief from that, you should see Russian assets go . rises and energy goes down ”.

If the situation worsens, Baveja has offered to hedge the currency rather than buying defensive stocks or preferring US assets to Europe.

“If we have to do it as part of promotions, we think DAX and European banks are probably the best hedges, ”he added.

Although stock markets in Russia and around the world are still sensitive to geopolitical developments, the ruble has remained relatively stable at around 75 to the dollar, despite some volatility.

Luis Costa, head of CEEMEA’s currency and interest rate strategy at Citi, told CNBC on Thursday that the ruble’s flow is likely to make it the most sustainable class of Russian assets, and high energy and gas prices indicate a strong current account surplus in Russia.

“And let’s not forget that Russia was buying currency, they were buying dollars as a derivative of fiscal law, and they stopped buying dollars about a month ago to support the currency,” Costa said.

“This makes natural flows in the ruble even more positive for the currency, so we believe that in the whole group of assets ruble risk, Russian risk, credit, rates, bonds and currency currency will remain the most stable part of the puzzle here.”

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