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The brutal invasion of Ukraine by the Russian regime headed by president Vladimir Putin and his cabal of oligarchs has resulted in severe economic, financial, and trade sanctions on Russia by Western nations (including traditionally-neutral Switzerland), cutting off Russian leaders’ access to capital and financial flows. Sanctions and embargoes have now also extended to Russian energy (gas and crude oil), a mainstay of Putin’s and the oligarchs’ wealth, and a huge source of income it has used to fund its military expansionism and oppression of neighbouring states.
While the invasion of Ukraine had unsettled equity markets looking at the broader geopolitical threat in Eastern Europe, traders have largely discounted any impact on forward earnings, and the major North American indexes rallied last week to make gains on the week overall.
Energy issues, which constitute some 15% weighting in the TSX, got a boost as Russian gas and oil exports to Europe and North America are expected to be choked off. The price of crude oil already on the upswing, gained 8.6% in February, helping the S&P/TSX Composite Index to a 0.5% advance on the week, for a slim 0.1% gain in February, and a marginal 0.6% decline year to date. Gold is trading well above US$1,900 per ounce, reflecting its traditional use as a crisis hedge and a hedge against inflation. Given Canada’s 5.1% annual inflation rate for January, the Canadian market has already priced in a rate hike of 25 basis points by the Bank of Canada at its March 2 announcement.
The major U.S. benchmark indexes also made gains. Inflation continues to burn up purchasing power, with the annual all-items U.S. inflation rate climbing to 7.5% and core at 6.0%, both at their highest levels since 1982. The consensus is that the U.S. Federal Reserve Board will still raise its policy rate this month, but by 25 basis points rather than the 50 points that had been expected, given the uncertainties created by Putin’s war on Ukraine.
With a broader sector exposure to information technology, telecom services, industrials, and healthcare than the S&P/TSX, the blue-chip benchmark S&P 500 Composite Index advanced 0.8% last week, but lost 3.1% in February overall, and is down 8% on the year, mostly in anticipation of the effect of rising interest rates on earnings. Likewise, the Nasdaq Composite Index, which is heavily weighted to the technology sector, rallied 1.1% last week, but lost 3.4% in February and is now down 12.5% for the year to date, putting it into correction territory.
* NEI debuts clean infrastructure fund. NEI Investments on March 1 introduced its NEI Clean Infrastructure Fund, a responsible investment strategy that invests in shares of publicly listed global companies that own low-carbon power generation assets and/or renewable infrastructure. The fund is sub-advised by Ecofin Advisors Limited, aLondon, U.K.-based sustainable investment specialist.
* Evolve launches tech titans ETF. Evolve Funds Group on March 1 debuted the Evolve Enhanced FANGMA Index ETF (TSX: TECE), which aims to replicate a 1.25 times multiple of the performance of the Solactive FANGMA Equal Weight Index Canadian Dollar Hedged. The fund provides investors with exposure to six technology titans: Alphabet Inc., Amazon Inc., Apple Inc., Facebook Inc., Netflix Inc., and Microsoft Corp
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