Sun Life Global Investments takes the ongoing conflict in Ukraine as a serious humanitarian crisis and continues to monitor the developments in Ukraine. In difficult times such as these, we continue to manage our portfolios on behalf of our clients as per our fiduciary duty. While the situation is quite fluid, we are actively considering the resulting economic and market consequences.

Flipping the Energy Equation

As Russia’s attack on Ukraine intensified, U.S. started discussing a ban on Russian energy imports. News of a possible Russian energy embargo resulted in crude prices touching an intraday high of $130 a barrel, the highest level since July 2008. Russia is the largest exporter of natural gas accounting for a little under a fifth of the world’s natural gas production and is the second largest exporter of crude. Furthermore, Russia and Ukraine are also key producers of agricultural commodities. Sanctions on Russia’s energy industry may strain the commodity channels underpinning the global supply chain, adding to general price pressures that may result in elevated inflation lasting longer.

Markets Run out of Fuel

The Russia-Ukraine war has also dampened sentiment across global markets. Markets across the world fell on fears of 1970s-style stagflation increasing the costs on companies and consumers.  While Russia accounted for 45% of the European Union’s gas consumption, the U.S. is far less dependent on Russia. Russia supplied just around 8% of U.S. crude and refined products in 2021. We think the conflict will have a more direct impact on Europe than on the U.S. and Canada.

Central Bank Challenges

The war has also complicated the job of central banks across the world. Even before the Russia-Ukraine war became a reality, our view was that markets were aggressive in their pricing of rate hikes from the U.S. Fed and the Bank of Canada. Lately both these central banks referenced the Russia-Ukraine as a new risk factor adding an exogenous source of uncertainty to their policy making. We believe both these central banks to still move ahead with rate hikes over the next few policy meetings. However, we also think that policymakers will be flexible to incoming data on inflation in the face of decelerating but positive growth and rising risks.

Given the uncertain environment, we continue to maintain our broadly neutral risk positioning. Over the last weeks, we have deployed some of our cash overweight to core bonds and have been adding to more defensive and higher quality U.S. equities.

 

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Investors should read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.  

Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any mutual funds managed by SLGI Asset Management Inc. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. This commentary is provided for information purposes only and is not intended to provide specific individual financial, investment, tax or legal advice. Information contained in this commentary has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy.

This commentary may contain forward-looking statements about the economy and markets, their future performance, strategies or prospects or events and are subject to uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. Forward-looking statements are not guarantees of future performance and are speculative in nature and cannot be relied upon.

Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada and Sun Life Financial Trust Inc. SLGI Asset Management Inc. is the investment manager of the Sun Life Mutual Funds, Sun Life Granite Managed Solutions and Sun Life Private Investment Pools.

© SLGI Asset Management Inc. and its licensors, 2022. SLGI Asset Management Inc. is a member of the Sun Life group of companies. All rights reserved.