On Feb. 24, Russia invaded Ukraine, and financial markets reacted sharply. The West responded by imposing sanctions. This caused overall sentiment to deteriorate even further. A large portion of Russian raw materials and goods from Russian companies are no longer being purchased, and this lack of supply has a huge price driving effect on oil and gas, for example. This also raises inflation (expectations). At the same time, investors are looking for a safe haven and this has a somewhat dampening effect on interest rates.
Shares
Almost all regions posted negative returns this month; only Latin America had a positive return of 4.6% (in euro terms). Europe, the US and the emerging markets index all experienced negative returns of about 3%.Once again, sector and style returns were again far apart. Growth stocks did relatively less well than value stocks. Also in February, energy companies and commodities performed relatively well, and IT and luxury consumer goods were the main sectors lagging in terms of returns.
Bonds
The flight to safety widened the gap between euro swaps (all European countries) and the financially stronger countries (e.g., Germany and the Netherlands). 10-year interest rates continued to run higher in major markets. German 10-year interest rates had an effective yield of0.13% (+0.12%) at the end of February. Inflation expectations in Europe ran further up again, now exceeding the ECB’s target level of 2%. The risk premium for less risky and more risky corporate bonds rose to 1.48%(+0.41%) and 4.58% (+0.40%) respectively, resulting in negative returns for February.