by Patrick Fearon-Hernandez, CFA | PDF
The Russia-Ukraine war has transformed the world in the blink of an eye. We think the war and its aftermath will reverse much of the economic globalization of recent decades and cleave the world into two or more blocs with only limited interplay. We believe sanctions on Russia will discourage many central banks from seeing the U.S. dollar as their preferred reserve currency. We see an isolated Russia being forced into an even tighter relationship with China, where it will be the junior partner.
Now that it’s easier to see the geopolitical and military threats from authoritarian leaders in China, Russia, and beyond, we believe the war has also ushered in a new era of high defense spending. We expect that countries around the world will now invest much more in national defense than they have in decades. This report examines the implications of higher defense spending within NATO and the potential ramifications for investors.
by Bill O’Grady | PDF
There are decades where nothing happens; and there are weeks where decades happen.
̶ Vladimir Lenin
Over the coming weeks, we will be analyzing the impact of the war in Ukraine. Clearly, the situation is highly fluid and projections on how the future will be affected by the war must be tempered with the fact that conditions will certainly change.
In this report, we will focus on the economic sanctions and their effects on globalization. As the conflict has evolved, Western nations have moved quickly to implement serious sanctions on Russia that will likely have far-reaching effects not just on the Russian economy but also on global trade and investment.
Our report begins with the sanctions on the Russian Central Bank and the impact on its foreign reserves; the discussion includes an analysis of Russian policies designed to accumulate reserves. From there, we project how reserve managers address the risk unveiled by the sanctions, including how nations view trade and development. Using this information, we examine how this change will affect globalization and what impact these changes will have on the economy, inflation, and markets. A look at the role of cryptocurrencies is also included. Finally, we close with potential market ramifications.