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How did emerging market equities perform during the last Ukraine-Russia (2014) crisis?

Dr. René Dubacher

Dr. René Dubacher


Financial Markets

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When assessing the Ukraine-Russia crisis, one can distinguish three main scenarios:

When assessing the Ukraine-Russia crisis, one can distinguish three main scenarios:

  1. An optimistic scenario assumes a short conflict, stabilization of energy prices, tightening of financial conditions and no abrupt reduction of risk assets

  2. A less optimistic scenario envisions a protracted conflict, a disruption in European energy supplies and an abrupt reduction in risk assets

  3. A worst-case scenario results in a disruption of European gas supply, a recession and delayed interest rate hikes

While these scenarios and their global implications are very different, there are still lessons to be learned from the last conflict. How did stocks perform during the earlier conflict in 2014?

Factor returns (long-short, quintiles) in the MSCI Emerging Markets universe, calculated by Bloomberg, show the following picture. A long-short strategy focused on emerging market value stocks gained, outperforming by 5.4% during the 10-week unrest and annexation of Crimea. Momentum and small-cap stocks were negative performers.

The following chart shows emerging market factor returns during Russia's annexation of Crimea:


Source: Bloomberg

Overall, energy stocks performed particularly well during the period. The value sector within energy stocks outperformed value stocks in the overall universe by almost 4%. Financials and industrials also generated a higher return. Cyclical consumer discretionary stocks, on the other hand, underperformed.

The following chart shows the returns of the emerging markets "value" factor for the overall index and various market segments during the annexation of Crimea by Russia:


Source: Bloomberg

Globally, energy prices are expected to remain high in the coming months. Cheap stocks with low volatility, if history is a guide, could outperform due to their defensive nature.

Despite the war in Ukraine, emerging markets have outperformed developed markets this year. By historical standards, emerging market equities are very cheaply valued and have positive earnings momentum to boot.

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Dr. Roman von Ah

Two major issues are preoccupying the stock markets: On the one hand, Russia's current threatening gestures towards Ukraine are rightly worrying market participants on the global capital markets. And on the other hand, the markets - after an excellent year for equities in 2021 - have reacted nervously to higher inflation rates and & interest rate fears in 2022 to date, correcting by over 10%.

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