Influence of the Russia-Ukraine war on markets according to a leading financial expert

The founder of the world’s largest hedge fund has been following the Russian invasion of Ukraine closely, and his concerns are likely shared by many of his counterparts in the Connecticut investment community.

Commentary by Ray Dalio, founder and co-chief investment officer of Westport-based Bridgewater Associates, on the war suggests that a large number of investors are looking at the impact of sanctions imposed on Russia and other economic repercussions of the invasion. But how the fallout from the conflict will affect investment firms like Bridgewater will depend a lot on their respective strategies.

“The sanctions that have been announced so far are designed to minimise the economic damage to Europe and the US and not hit Russia hard enough to cause major retaliation - for example, they have not yet curbed Russian energy exports or removed Russia’s access to the SWIFT network. In other words, so far economic warfare has not been very costly for NATO countries,’ Dalio wrote in a LinkedIn post. “If these are the only answers, they will have no significant effect on markets and Russia will probably eventually gain control of Ukraine by paying the price of tolerably painful sanctions.”

“At the NATO/Russia level, this war will be more like a negotiated exchange than an out-of-control war, so it will not upset much beyond Ukraine and Russia,” Dalio added. He noted, however, that “the further the war extends beyond these borders, the more significant will be its impact on other things, including markets.”

Bridgewater’s moves

Dalio did not comment in the post on how he thought Bridgewater’s assets under management, whose total ranks first among hedge funds, would be affected by the markets’ response to the war. Bridgewater manages about $150 billion in assets for institutional investors, including public and corporate pension funds, university endowments, charitable foundations, foreign governments and central banks.

A message left with a Bridgewater spokesman asking about the firm’s investment strategy in response to war-related developments, such as sanctions, was not immediately returned.

Among other Connecticut investment firms contacted by Hearst Connecticut Media, Greenwich-based AQR Capital declined to comment, while Stamford-based Point72 did not immediately respond to a message.

Investment firms’ positions tied to oil and gas holdings and foreign exchange markets could produce big gains, depending on how they predicted the economic impact of the war, according to some experts.

“Increased uncertainty, variability and fluctuations can benefit a hedge fund, which is able to predict and anticipate. They don’t make money in stable markets because there’s not much to anticipate,’ Lawrence J. White, professor of economics at New York University, said in an interview. “I can imagine a hedge fund saying, ‘I hate all the human costs and turbulence, but this is an environment where I can make money’.”

Having dealt with the COVID-19 pandemic upheaval and numerous other global crises in previous years, investment companies are used to turbulent markets.

Last year, the world’s 20 best-performing hedge funds set a record by earning more than $65 billion for clients, Reuters reported in January. Bridgewater rebounded after losses in 2020 by posting a gain of $5.7 billion in 2021, according to data cited by Reuters.

At the same time, some financial services advocates said they had more pressing concerns about the war than investment returns.

“I am concerned about the situation in Ukraine from a humanitarian standpoint and from the standpoint that dangerous authoritarian regimes should not be allowed to intimidate and invade their neighbours, especially peaceful democracies,” said Connecticut Hedge Fund Association President Bruce McGuire. “I am concerned about hedge funds - no, not really.”

Source of this article: ctinsider.com