Financial markets and the war in Ukraine

BNR Nieuwsradio
Image - Mary Pieterse-Bloem
Erasmus School of Economics

Russia’s stock market has been closed for almost two weeks now. Moreover, foreign investors are not allowed to make sales orders. Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics, explains the consequences of the war in Ukraine on the financial markets in an interview with BNR Nieuwsradio (1 March 2022).

Exclude Russia from SWIFT

At this moment, we see that a very important part of Russia has been excluded from SWIFT. Furthermore, it can be noted that many other private parties are increasingly terminating activities in Russia. Pieterse-Bloem argues that excluding Russia from SWIFT is a very firm measurement since this boils down to financially excluding a country from the rest of the world. No transaction can take place anymore between the Russian banking system and the international banking system.

Russia’s stock market

Although firms that are not listed on Russia’s stock market are not affected by the closure, the Professor notes that other stocks which are tradable are currently not being bought either. Since financial institutions are unwilling to have any (in)direct exposure to Russia and/or Ukraine.

In a country such as Russia, a lot of things are more or less owned by the state, hence, some private firms are used as an extension of the state. She predicts that in the next wave of sanctions, those firms will be affected.

Prices of raw materials

Pieterse-Bloem thinks that the Central Bank will probably have to return to the drawing board due to lower expected economic growth caused by the war in Ukraine. Furthermore, raw materials such as aluminium and palladium are imported from Russia. And, Russia and Ukraine combined, are responsible for one-third of the world’s wheat and barley supply. The war will thus create scarcity with respect to these goods, which will force producers of essential goods to raise their prices.

A piece of advice

Pieterse-Bloem concludes with some advice for investors. In times of unrest, one should create logic in chaos by working in scenarios. ‘What happens if I extrapolate line x’, ‘what happens if this war turns out to be a prolonged war?’ In times such as these, one should thus make firm adjustments to correct for certain fundamental macroeconomic variables.

More information

You can listen to the broadcast by BNR Nieuwsradio, 1 March 2022, here.

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