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Markets are trading higher this morning after Russian and Ukrainian foreign ministers are meeting in Berlin for the first time in weeks for talks aimed at ending the conflict in eastern Ukraine, where there was heavy fighting over the weekend for control of the city of Luhansk. It is all about finding a roadmap towards a sustainable ceasefire and a framework for effective border controls. Only in this way can eastern Ukraine calm down and Kiev continue a national dialogue that appropriately involves the people in the east.
The DAX is the European market that has been hit most from the geopolitical tensions created between Russia and Ukraine. The DAX is down 5% for the year. The main reason for this is that there are a lot of companies within the index which are suffering due to these problems. A companies which have suffered losses due to the tensions in Russia are Adidas, Deutsche Bank, Volkswagen, Deutsche Lufthansa, Deutsche Post, Commerzank and SAP.
On the other hand, companies in the index which continued to add value since the start of the year despite the tensions are Thyssenkrupp, Infineon technologies, RWE, K+S, E.ON and BMW.
Another negative created by the Russia-Ukraine conflict is Mario Draghi’s promise of cheap cash for banks betting on the euro-area revival is losing its allure. Economists cut their estimate of the take-up of funds under a program designed to boost bank lending. The reduction signals concern that the outlook for the currency bloc may be too weak to drive demand for loans, undermining a policy the European Central Bank president says is key to restoring the region’s health.
This is why the markets are reacting positively today. Because any form of cooperation between the two countries will be taken positively by the markets. From a technical point of view, markets in Europe are indicating an attractive entry point. But this all depends on whether the situation will worsen or improve. This will determine whether analysts will have to further downgrade their valuations or improve them as they see light at the end of the tunnel.
Keep in mind that picking a bottom in these markets is impossible. What’s important is taking a long term view of circa 5 years and factor in the negative impact of this crisis but also the recovery post the negative event. There are a lot of companies on the market which have been beaten down because of market risk but once the situation calms down, they will be the first to rally. And they are these companies which you should be looking out for and holding in your portfolio. The most important advice is to hold a diversified portfolio. Do not worry about those stocks you hold in the portfolio which have been beaten down because of market risk especially if they are not directly affected. On the other hand, do get advice on those stocks which are directly affected by this negative situation. It could be the sell-off still results in an overpriced position. Patience is key and also monitoring the portfolio periodically to see which are the winners and which stocks are the losers and should be sold. Only through this exercise your portfolio can benefit from situations like these.
What’s most important is to get professional advice before taking a position in the market. Being well positioned for when momentum turns positive is key. See the opportunity is every situation, cut loses when needed and always think long term. This is how your portfolio can generate decent returns long term.
Good day and happy trading!
Kristian Camenzuli
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