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• We prohibit any purchase of Russian securities
• The Russian-Ukrainian conflict is fraught with stagflation of the global economy
The conflict between Russia and Ukraine is a real tragedy for Europe and the world. It undermines peace and endangers the lives of thousands of innocent people. Our thoughts go first and foremost to the victims of this war, which we hope will find a speedy solution.
Our mission, which we fully realize here, is to best manage the capital that our clients have entrusted to us. In order to best protect their interests in this special context, we constantly make the necessary decisions, closely monitoring the development of the geopolitical and economic situation in accordance with our contractual and legal obligations.
The Russian invasion now raises the question of the acceptability of Russian securities for our funds. We are committed managers driven by the ethics we embody in our investment policy. Therefore, we have decided to ban any purchase of Russian securities until further notice. At the same time, we strive to manage the exit of securities still present in portfolios, taking into account non-financial aspects, as well as market conditions, in order to preserve the interests of our clients, which is our main goal.
New global economic environment
The global economy is in for a triple shock. The first affects world trade, causing disruptions in the supply of energy raw materials, as well as food, metals, fertilizers, and air travel. The second takes the form of a shock of uncertainty over the collapse of the post-Cold War geopolitical order and the risks of escalation. Finally, the third is a financial shock with possible defaults in Russia and Ukraine, as well as their possible spread to other countries.
The Russian-Ukrainian conflict and the economic sanctions that accompany it create the risk of stagflation, that is, an economic downturn coupled with high inflation. The scarcity of available raw materials can actually lead to serious breaks in production chains, the consequences of which will be negative for economic growth and lead to further price increases. While the economic outlook for 2022 already pointed to slower growth and persistent inflation, this conflict is an amplification of economic trends that we have partially integrated into our investment strategy.
The effects of slower growth and faster inflation will affect Europe and Asia more than the United States. Indeed, the main macroeconomic ripple effect comes from commodity prices, to which the European Union is most sensitive, given its dependence on oil and gas imports.
Based on assumptions that combine a stalemate or escalation of conflict both economically and militarily, we modeled a number of plausible scenarios and assessed their implications for Europe and the United States.
We estimate that a war in Ukraine could cost Europe 0.5 to 2 points of growth and raise prices in the region by 1.1-1.7 percentage points for the full year. For the United States, the impact will be smaller, with a slowdown of 0.2 to 0.5 points and a price impact of +0.7 to +1.2 points, depending on the severity of the scenarios.
Adapting our investment strategy
The identification of “stagflationary” trends before the conflict forced us to take a more cautious stance and reduce our exposure to risky assets. In the equity markets, our investments, which have a higher weight than the United States, are currently mostly concentrated in defensive segments such as health care and consumer products and/or offer good visibility at a reasonable price in the technology, information and consumer sectors. The share of high-value growth companies has dropped sharply.
At the same time, we reduced the total net risk exposure of our funds’ shares in the Patrimoine range to around 5%, primarily as a result of index hedging.
In the fixed income markets, we hedge our exposure to bonds by buying protection in credit and emerging debt markets, and have taken a position to exploit tensions around interim maturities.