The Russian invasion of Ukraine has stirred up turmoil in the markets which is likely to continue through 2022, said David Chao, global market strategist for Asia Pacific (ex-Japan), Invesco, to a media briefing.
The geopolitical crisis will discourage investors from taking risks, said Invesco, and is likely to benefit assets with higher liquidity.
Chao believes asset classes such as cash, US dollars, short term debt, gold, and low volatility equities are more attractive in this uncertainty.
“Yet, we also expect Russia to continue supplying energy and oil to Europe, with oil prices remaining elevated, but not reaching energy crisis level,” said Chao. “That would only occur if Russia disrupts energy supplies to Europe.”
Under this scenario, Chao thinks global growth will be at a slower pace, and central banks will be less hawkish than previously expected.
Chao believes there is a “moderate recession risk” due to lower global growth as household and consumer sentiment drops and inflation rises.
The global market strategist also favours energy related assets, for example, natural resources, energy, agriculture, and minerals.
Benefitting from energy production and exports, the Middle East is one of the regions preferred by Invesco this year.
The asset manager also favours China and other Asian markets, which have relatively little reliance on Russian trade and are generally insulated from geopolitical crisis.
The US market is also expected to continue to outperform due to its relative independence on Russian trade. Yet, Chao warned investors to look out for higher inflation, especially petrol price hikes, which may dampen investors’ sentiments.