Rising tensions in Ukraine causing investor confidence to fall

With tensions rising on the border of Ukraine as fears of a Russian invasion continue, the latest index from financial services provider Hargreaves Lansdown (HL) shows that investor confidence has fallen sharply.

According to the latest HL index, investor confidence in the UK has fallen by 11% in February, the biggest drop of any global region. Investor confidence in Europe has also fallen 10%, while confidence in the US has fallen by 7%. Global emerging markets are the only sector that has not registered a fall in confidence in February.

The index says fears of an imminent invasion of Ukraine and soaring inflation are likely to be behind the fall in investor confidence.

The BBC reported today that UK Prime Minister Boris Johnson has said the “evidence is pretty clear” that Russia is planning an invasion of Ukraine.

According to the index, oil prices rose to a seven-year high, edging up towards $96 a barrel, whilst natural gas prices surged another 4.9%.

Expectations that interest rates are going to be higher in the short term have also risen in February and stayed static over the medium term.

The Nikkei 225 and Hang Seng sharply lower in Asia and European markets are expected to fall on the open too.

Global Sectors % Change Feb-22 vs Jan-22
Asia Pacific -4%
European -10%
Global Emerging 0%
Japanese -5%
North American -7%
UK -11%
Average % Change -6%

 

Commenting on the latest HL index, Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, commented: “Just as the storm of Covid appeared to be receding, the growing expectation of an invasion of Ukraine is the fresh threat now unnerving investors, with confidence plunging in many parts of the world.

“With worries that inflation is already running far too hot, the possibility Russian troops could move across the border has led to another surge in the oil price to above $95 a barrel, edging up towards $96, a level Brent crude has not been at since 2014. Energy markets are clearly on edge and if supplies are threatened, there is a risk oil will shoot up even higher, adding to price pressures for companies.

“The twin troubles of a looming conflict and soaring prices are likely to be behind the plunge in investor confidence, in almost all global regions, with confidence falling by 6% on average. Investor confidence in the UK has fallen the most, down 11% ahead of the latest reading on inflation this week, which is likely to show another big rise in prices.

“As consumers brace themselves for more financial pain to hit as household bills shoot up and retailers are forced to pass on higher commodity, transport and labour costs through the price of goods and services, investors are doubly spooked by the prospect of war breaking out in Europe.

“A fresh surge in European gas prices is also expected if conflict does erupt, which would intensify the cost of living squeeze and this could temper consumer confidence. For now, spending appears robust, but as inflation continues to rage on, that may start to change. Big brands with pulling power may continue to be resilient but it’s likely smaller companies may find higher prices a much harder sell leading to more struggles and potentially insolvencies ahead.’’

Each month, Hargreaves Lansdown sends the investors’ confidence survey to 6,000 random clients and there is a representative split of clients by age with around 10% of clients responding.

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