As the conflict in Ukraine deepens and the fallout from increasingly tough sanctions on Russia reverberate through global markets, investors are rushing to keep up. 

Safe havens like bonds, gold and the U.S. dollar rallied on Monday, while classic risk-sentiment proxies like the Australia dollar tumbled. Emerging market currencies also came under pressure, with the South African rand and the Turkish lira sinking. U.S. and European equity futures tanked. Crude oil surged.

Investors face soaring global commodity prices on top of already elevated inflation and slowing global growth after the pandemic recovery. They’re also trying to get a handle on how central banks may recalibrate monetary policy to meet the challenges.

Here is what a selection of strategists and investors have to say on the unfolding situation across asset classes.
 

NO TIME TO BUY THE DIP

Saxo Capital Markets is keeping a defensive stance on equities and sees continued upside in energy, mining and commodity stocks. 

“It is probably not time to buy the dip, yet be selective and consider stocks and markets that could benefit from geopolitical tension worsening and commodities rallying,” Jessica Amir, a market strategist in Sydney, wrote in a note. 

Amir expects U.S. equities to fall further given “there is so much uncertainty in the air,” and “inflation is at multi decade highs, and set to get worse.”
 

HIT TO GROWTH

GAMA Asset Management has raised some of its hedges by selling the euro following the increased sanctions by the West on Russia, said Rajeev De Mello, global macro portfolio manager.

“Higher energy prices will affect European growth, and confidence will be shaken. The ECB will be slower to normalize its monetary policy than other central banks.”
 

‘IMPOTENT’ CENTRAL BANK

Russia’s central bank may become “impotent” in defending the ruble if sanctions are successful, according to National Australia Bank strategists.

“While not entirely clear as yet exactly what it means in practice, Russia’s central bank (CBR) has been sanctioned with the intention of denying it unfettered access to its (US$643bn worth) of FX reserves,” Ray Attrill, head of FX strategy, markets, wrote in a note. “If CBR can’t access reserves, it can’t defend the RUB from free-fall.”
 

HARD MONETARY DECISIONS

“From a monetary policy perspective, this conflict implies a further deterioration of the already tricky growth-inflation trade-offs central banks have been facing, making the upcoming decisions particularly hard,” Silvia Dall’Angelo, senior economist at Federated Hermes, said in a note.

“In the current environment of already high inflation and concerns about second-round effects, central banks will likely continue to remove monetary stimulus,” she said. “But downside growth risks from the geopolitical backdrop mean that they are likely to proceed gradually and cautiously. It is fair to say that the crisis increases the room for central banks’ policy mistakes.” 
 

EUROPEAN BANKS UNDER PRESSURE

“European banks may be under some pressure on Monday given some Russian exposure and concerns around what that will mean if payments are restricted,” TD Securities strategists including Rich Kelly wrote in a note. 

“Austrian banks are most exposed, with Russian counterparties representing 1.6 per cent of banking assets, followed by 0.6 per cent for Italy and 0.2 per cent for France,” they wrote. “Expect the ECB to provide ample liquidity and national authorities to provide what support and forbearance is allowed to manage those exposures.”
 

HARD TO BE SHORT

“While we aren’t making a long call, it is harder to be short the market longer term (again, we are assuming a non-catastrophic aftermath),” 22V Research strategists led by Dennis DeBusschere said in a note. “Sentiment for buybacks and dividends remain at very high levels, supporting future cash return. Additionally, dividend and buybacks, as a percentage of operating cash flow, are not elevated.”

“Bottom line, being short the market on earnings slowing and financial conditions tightening is harder now. Being short because you have a strong view on oil prices going to US$150 as Russia escalates further, falls apart, and drags Europe into a deep recession is a different story.”
 

LOOKING PAST DAILY SWINGS

“Asian markets will likely show big daily swings but looking at the long-term trends, it’s not too unreasonable to start buying,” said Jung Sang-Jin, chief equity manager at Korea Investment Management Co. “There’s no need to react sensitively to every single short-term development.”

Jung said the biggest worry is whether inflationary pressure persists through the second half of the year, but if it doesn’t, “we can ignore other short-term factors.” 
 

PEAK CONTAGION?

“Risk aversion related to conflict may already have peaked,” JPMorgan Chase & Co. strategists led by Mixo Das said in a note. “Markets tend to overprice known unknowns and this leads to the typical pattern of ‘buy the fact.’ While the scale of the invasion was worse than feared, the lack of a swift win for Russia likely lowers the likelihood of the conflict spreading.”

Das added that investors need to remember that Russia and Ukraine account for less than 2 per cent of global GDP and the exposure of global banks to Russia is less than US$100 billion. 
 

HEDGE TURMOIL WITH ENERGY

“The biggest risk of this crisis will be energy disruption” as well as effects on food and other global commodities, Ben Emons, global macro strategist with Medley Global Advisors, said on Bloomberg Television. “You want to position particularly in that direction, companies that are focused on the different commodities, including energy,” he said.

Other companies may announce divestments in the wake of BP Plc’s plan to dump its shares in Russia’s largest oil company Rosneft PJSC, he added. U.S. energy firms will likely do much better initially then European ones, Emons said.