War and business don’t always mix. While the Russian offensive continues on Ukrainian soil, the European stock exchanges turned red again on Monday. Risk or opportunity? Answer with Thomas Perret, founder of Mon Petit Placement.
Thomas Perret
Co-founder and president of Mon Petit Placement
Another day of decline for the CAC40. Since the invasion of Russian forces in Ukraine, the markets are unraveling. The flagship index of the Paris Stock Exchange had already lost 4.97% last Friday. When it opened this morning, it was still breaking 2.77%to reach its lowest level for a year, i.e. 5,887.83 dots. Should you sell your shares before it’s too late? What trade-offs to limit your risk exposure? Is it the right time to invest? Questions that MoneyVox submitted to Thomas Perret, founder of Mon Petit Placement, a fintech that democratizes investment for individuals.
What are the consequences of the conflict in Ukraine on the French economy and its growth prospects?
Thomas Perret: The Ukrainian crisis has two strong impacts on the tricolor economy. The price of raw materials, already high at the end of the pandemic, is again under pressure. The price of a barrel of Brent, for example, came close to $140, close to its all-time high. At the same time, the price of gas is soaring to reach a new record on the European market on Monday, almost 350 euros the mgawatt hour. Agricultural raw materials are also concerned. Last Friday, for example, wheat posted a price of 393 euros per ton. Never seen.
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These increases have a direct impact on companies’ production costs and on the purchasing power of French households, which partly explains the drop in prices. But, as always in times of crisis, there is also a psychological aspect. War causes concern, especially when it takes place at the gates of Europe. The confidence of households and businesses is affected. The risk is to see households reduce their consumption and increase their precautionary savingswhich would have a negative impact on growth.
How are the financial markets reacting?
Thomas Perret: The CAC40 and Dax respectively lost 15% and 19% of their value since January 1. But there is a good chance that the drop will only be temporary. If we look at the crises that have plagued history since the Second World War, we notice that these shocks are often transitory. In general, less than 3 months after the start of a conflict, the markets returned to their initial level. This is what happened during Brexit, for example.
The only downside to the Ukrainian crisis is that this conflict, although very localized, could have a overall impact on the economy, due to the rise in commodity prices, which could affect several sectors. Starting with car manufacturers who were already suffering from supply difficulties because of the pandemic, on exhaust pipes, in particular. On this point, the war in Ukraine could aggravate certain shortages.
Banks are also affected. Some of them have subsidiaries in Russia. This is particularly the case for Socit Gnrale and BNP Paribas. In addition, they are impacted by economic sanctions, such as the exclusion of Russia from the SWIFT interbank network. Companies specializing in defense and armaments, such as Thals and Dassault Aviation, on the other hand, saw their valuations appreciate considerably following announcements from France, Germany and China, which indicated that their defense budget would be revised upwards.
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How can investors protect themselves in this type of situation?
Thomas Perret: To protect yourself from the ups and downs of the financial markets, you must always be careful diversify your portfolio. At the sectoral level, by investing in companies from sectors such as health, tech or defence, but also at the geographical level. We can clearly see this at the moment: Europe is hit hard by the conflict, since it is taking place close to its soil, while American companies are little affected for the moment. Diversifying your positions can dilute your exposure to risk.
Then, it all depends on your investment horizon. If I still have 5 years in front of me, what’s going on right now shouldn’t worry me too much. Better to do the round back. On the other hand, if I have a real estate purchase project planned by 1 year, it is probably better to secure my capital. In which case, there are two options: exit completely by selling your shares, which amounts to recording your losses, or directing you towards defensive assetssuch as gold, the Swiss franc, or Chinese assets, which are less exposed to the Ukrainian crisis and can fulfill the role of safe haven.
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Is it the right time to invest?
Thomas Perret: The best is always to enter several times, to smooth out variations, especially when prices are volatile, as is the case at the moment. The markets have lost 15 20% since the beginning of the year, we have therefore had an interesting entry point. Especially since several indicators invite us to remain optimistic for the future: unemployment is low, growth is holding up well, and thanks to the interventionism of central banks, there is still plenty of liquidity on the markets.
The main source of concern is theinflation. It was already important after the health crisis, and the conflict in Ukraine could aggravate it by putting pressure on raw materials, which have already seen their prices soar in recent weeks. If inflation remains close to its pre-war level, there could be a fast rebound. On the other hand, if the rise in prices turns out to be worse than anticipated, the year 2022 could be complicated.
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