The invasion of Ukraine, while not a surprise, is nevertheless full of unknowns – we have no visibility over the duration and long-term effects of the conflict. What we do know is that the conflict has materially increased the tail risks in the global economy, resulting in a higher probability of a slowdown in growth. Moreover, it is clear that there is heightened volatility in markets which, while resulting in noise and disturbance, creates opportunities for active managers.
It is worth remembering the vast majority of the US equity market is not directly impacted by exposure to Russia or Ukraine, and the combined revenue exposure of the entirety of the S&P 500 is estimated to be about 1%. So although the US is part of the coordinated global effort, in terms of sanctions, the stock market impacts for now are relatively benign, and corporate earnings are not expected to be materially affected by the crisis. Indeed, we are still expecting to see earnings growth of around 8%-12% this year.