Ukraine war one year on: Impacts still felt in energy markets, pension fund returns

One year on from the start of war in Ukraine, global markets — and investors — are still feeling the effects of Russia's invasion.

The war touched many parts of the financial world, either directly or indirectly. In the year since Russia's invasion began on Feb. 24, 2022, inflation has spiraled across developed markets, equity and bond markets have taken a battering, citizens are suffering from an energy price shock, and global supply chains have been broken.

Those impacts were cited across institutional investors' 2022 returns commentaries, with the war in Ukraine cited by many as a key reason for negative returns for the calendar year.

The MSCI ACWI lost 18.4% in 2022 vs. a gain of 18.5% in 2021. However, sources said markets have partially recovered — and Marcus Poppe, co-head of European equities at DWS Group, said in a Thursday commentary that the war is no longer playing a role in stock markets.

But he warned that a "Russian spring offensive could quickly create a new situation" — a risk premium that is not yet priced in.

Mr. Poppe added that while the war may no longer be driving market performance, it has left scars on eurozone economies to the tune of 1 percentage point of growth in both 2022 and 2023. Russia, he said, can expect a GDP loss of almost 7 percentage points in growth across 2022 and 2023. He also warned that investors should not assume that a recent equity rally "will continue in the same form," since inflation and interest rates are likely to remain high, and corporate profits and valuations appear to be largely exhausted.

As such, he said investors with a long-term horizon should not be put off, but should pay a little more attention to balance sheet quality in view of the higher interest rates expected in the near future.

MSCI research executives said in a separate commentary, "Global Markets One Year After Russia's Invasion of Ukraine," published on Tuesday, that markets have partially recovered, but added that important uncertainties remain.

Executive Directors Ashish Lodh and Tom Leahy, along with Managing Director Andy Sparks, also head of portfolio management research, and Vice President Elchin Mammadov, wrote in the commentary that inflation, economic growth and the effectiveness of monetary policy will broadly drive markets, alongside many fundamental drivers.

Energy markets were also hugely impacted by the war. The price per barrel of Brent oil was $96.84 on Feb. 23, 2022. Over the year, it peaked at $127.98 on March 8, hovered around the $110 mark before declining. On Feb. 23, Brent was priced at $81.55 per barrel.

The war also gave rise to concerns about energy security and affordability, and drove a fossil-fuel resurgence for oil, gas and coal around the world. Yet that same concern about energy security and climate change also drove increased investment in renewable energy infrastructure, according to the MSCI analysis.

"Russia's invasion gave a short-term boost to fossil fuels, yet it also spurred a clean-energy arms race," said MSCI analysts, who expect that clean energy could meet most of the expected growth in energy demand through 2025, helped by the U.S. and other countries offering green subsidies for clean technologies.

The war also saw a number of global companies pledge to exit business in Russia. However, analysis by The Moral Rating Agency, a London-based corporate watchdog set up after the Ukraine invasion to track companies doing business with Russia, found that only 17 companies from the top 122 global companies involved with Russia at the time of the invasion of Ukraine have exited all of their activities. Most companies (59) are "stuck in the middle," making a partial or incomplete withdrawal, the analysis said.