The seasoned investment director and former Moscow reporter says markets are pricing in at least another year of Russia’s war in Ukraine.

  • According to the CIO of Spouting Rock Asset Management, the Russian-Ukrainian conflict could last until 2024.
  • Rhys Williams, a former Moscow journalist, explained how the market looks at the war a year later.
  • “This is an existential war for Putin. It may not be in the interests of Russia to continue, but Putin is completely in it.”

As the Russian war in Ukraine passes the one-year mark, according to Rhys Williams, chief investment officer of Spouting Rock Asset Management, markets are already looking at at least another 12 months of conflict.

“The protracted war is included in the price, which is what everyone expects,” Williams told Insider. Prior to a multi-year career in asset management, Williams, who speaks Russian, worked in the Moscow office of The Sunday Times in London.

“This is an existential war for Putin,” he said. “Perhaps it is not in Russia’s interests to continue, but Putin is completely for it.”

In his opinion, investors behave as if the war will continue into 2024.

“I don’t think the Russian or Ukrainian gains are priced in, and I’m not sure which would be worse from a market standpoint,” Williams said. “We can all root for Ukraine, but from a market perspective, if Ukraine starts to win, it will increase the risk that tactical nuclear weapons and China will become even more involved.”

Markets prepare for grueling stagnation

According to the veteran, the course of the war, leaning in favor of Moscow or Kyiv, is likely to provoke a reaction among global investors.

“There will be a sell-off in stocks and possibly a flight into bonds in a scenario where Russia either wins big or loses big,” Williams says. “Both of these involve risk. Neither side can agree on a solution right now.”

He doesn’t expect stocks to sell off sharply like last year, but instead says stocks will be largely flat as companies are now valued more fairly after the 2022 debacle.

“The chances of another 2022 are very slim,” Williams said. “For that, everything has to really break horribly. But the chances that the market will rise by 30%, I also think it is unlikely.”

Defense stocks could rise on expectations of a protracted conflict, Williams noted, and every country is likely to increase defense spending in 2023, especially countries close to Russia and China.

Meanwhile, another market consequence has been extreme volatility in energy prices, which could continue into the second year of the war.

Brent crude, the international oil benchmark, has pulled back from last year’s highs of around $127 a barrel and is currently hovering around $82. It is possible that China’s reopening will drive up prices this year, Williams said, although that could be exacerbated by fluctuations in Russian energy production.

According to Williams, Western sanctions against Russia could lead to a long-term decline in the dollar.

As the US froze savings in Russian dollars, Moscow turned to other currencies for trade. A Bloomberg report in January said Russia’s $45 billion stash of Chinese yuan is helping it weather sanctions and offset losses in energy revenue.

While the impact is likely to remain minimal over the next one to two years, Williams predicts that if things continue in this direction, the dollar could gradually lose its dominance over the next decade.

“If Ukraine really starts to win, it will become risky for the market,” he said. “But if Russia wins, that will also make the markets very nervous. I do think that both cases are unlikely, and that the stalemate is a likely case that has more or less been priced in.”

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