Russian invasion of Ukraine prompts more sanctions, revised forecasts

Russia’s invasion of Ukraine Thursday is prompting leaders in other countries to impose increasingly strict sanctions, and some asset managers to revisit forecasts, particularly for Europe.

Earlier in the week, officials in the U.S., U.K. and Europe imposed first rounds of sanctions targeting Russia’s sale of sovereign debt abroad and Russian banks’ access to respective capital and financial markets.

Following the invasion, the White House announced further sanctions, including against Sberbank — Russia's largest lender — and four other financial institutions that represent an estimated $1 trillion in assets, as well as a broad swath of Russian elites and their family members.

European Commission President Ursula von der Leyen said Thursday that EU leaders would shortly approve "massive and targeted sanctions" against Russia, aimed at "strategic sectors" of the Russian economy and blocking access to technologies and key markets. "In addition, we will freeze Russian assets in the EU and stop the access of Russian banks to European financial markets,” Ms.von der Leyen said in a statement.

As the political responses continue, markets are expected “to remain very volatile for some more days until there will be clarity about the scope of Western’s sanctions and a better understanding of whether Putin will stop at the Ukrainian borders to other post-Soviet states,” said Stefan Kreuzkamp, chief investment officer for DWS, with €928 billion ($1.05 trillion) under management.

The risks of a recession in Europe have also increased, prompting the firm to review strategic forecasts, Mr. Kreuzkamp said in an emailed statement.

He and other market analysts agree that one of the biggest economic impacts will be on energy supply, particularly natural gas, and energy prices,that could trigger a recession in Europe.

An investment note from Amundi Institute, a research unit of money manager Amundi, said that global markets that had not priced in a war scenario “are now adjusting given the magnitude of this military move,” and that adjustment will take time.

“This is not a time to try to buy the dip, as the market does not yet fully understand the impact of this geopolitical shock,” it said. “Overall, we believe it is time to keep hedges in place and stay cautious, but not overreact to excesses that we will likely see in the coming days, It predicts equities will be the first target of risk reduction, followed by credit, and "a rising probability of further repricing across global risk premia,” it said.