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Ukraine war to trigger financial crisis worse than 2008, say a fifth of investors

  • Half of institutional investors say the Ukraine crisis will plunge the world into stagflation.
  • A fifth think the crisis will cause a global financial crisis worse than the Great Recession.
  • Four in 10 will raise allocations to assets positively correlated to inflation due to the crisis.
  • Half are set to change their ESG strategy to exclude Russian investments.
  • Half say asset managers investing in Russian assets cannot claim to be ESG-compliant.

Half of institutional investors say the Ukraine crisis will plunge the global economy into stagflation, while a fifth think it will trigger a financial crisis worse than the Great Recession of 2008.

A CoreData Research study of more than 200 global institutional investors found 51% think the surge in energy prices triggered by the invasion of Ukraine will push the world economy into stagflation. Fears over stagflation are most pronounced among APAC (65%) and European (55%) investors.

The study, conducted in April, also shows about one in five (18%) investors around the world think events in Ukraine will cause a global financial crisis worse than the Great Recession of 2008. This rises to 20% of APAC investors and 19% of European investors. Concerns about the war’s impact on inflation are driving changes in asset allocation strategies.

More than four in 10 global investors (43%) plan to raise allocations to assets positively correlated to inflation, including commodities and real estate, due to the crisis. European (49%) investors are most inclined to increase exposure to inflation-sensitive assets amid the current geopolitical turmoil.

Meanwhile, one in five (20%) investors think private assets offer the best hedge against an inflation shock caused by the invasion. A similar proportion (17%) say their organization will raise allocations to private assets due to market volatility stemming from the crisis. This increases to 25% of APAC investors.

Despite worries over inflation, about a quarter of investors (23%) think central banks should abandon plans to raise interest rates in the wake of the Ukraine crisis. This indicates some investors see slowing growth as more of a concern than rising prices. More European investors (27%) think central banks should pause rate hike plans, reflecting elevated worries over economic growth in the region.

“Investors are navigating multiple headwinds including inflation, slowing growth and volatility which are emanating from an increasingly turbulent geopolitical and macroeconomic storm,” said Andrew Inwood, founder and principal of CoreData.

“Investors therefore need multi-pronged investment strategies that provide both downside protection and alpha — and active managers are best-equipped to deliver this.”

Investors are also reconfiguring their ESG approach on the back of the Ukraine invasion. Half (50%) are set to change their ESG strategy to exclude Russian investments. And they expect asset managers to follow suit — half (49%) say managers that invest in Russian assets cannot claim to be ESG-compliant.

The unfolding crisis in Eastern Europe has also prompted investors to re-examine attitudes towards investments previously deemed unethical. Almost one in five (17%) say they will alter their ESG strategy to permit investments in defence-related companies. Half (50%) remain undecided on the issue.

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