© 2024 M&T Bank and its affiliates and subsidiaries. All rights reserved.
Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation including, but not limited to, Manufacturers & Traders Trust Company (M&T Bank), Wilmington Trust Company (WTC) operating in Delaware only, Wilmington Trust, N.A. (WTNA), Wilmington Trust Investment Advisors, Inc. (WTIA), Wilmington Funds Management Corporation (WFMC), Wilmington Trust Asset Management, LLC (WTAM), and Wilmington Trust Investment Management, LLC (WTIM). Such services include trustee, custodial, agency, investment management, and other services. International corporate and institutional services are offered through M&T Bank Corporation’s international subsidiaries. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank. Member, FDIC. 
M&T Bank Corporation’s European subsidiaries (Wilmington Trust (UK) Limited, Wilmington Trust (London) Limited, Wilmington Trust SP Services (London) Limited, Wilmington Trust SP Services (Dublin) Limited, Wilmington Trust SP Services (Frankfurt) GmbH and Wilmington Trust SAS) provide international corporate and institutional services.
WTIA, WFMC, WTAM, and WTIM are investment advisors registered with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply any level of skill or training. Additional Information about WTIA, WFMC, WTAM, and WTIM is also available on the SEC's website at adviserinfo.sec.gov. 
Private Banking is the marketing name for an offering of M&T Bank deposit and loan products and services.
M&T Bank  Equal Housing Lender. Bank NMLS #381076. Member FDIC. 
Investment and Insurance Products   • Are NOT Deposits  • Are NOT FDIC Insured  • Are NOT Insured By Any Federal Government Agency  • Have NO Bank Guarantee  • May Go Down In Value  
Investing involves risks and you may incur a profit or a loss. Past performance cannot guarantee future results. This material is provided for informational purposes only and is not intended as an offer or solicitation for the sale of any security or service. It is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. There is no assurance that any investment, financial or estate planning strategy will be successful.

The horrors unfolding in Ukraine are deeply upsetting on every level. As investors, it is our job to separate emotions from facts that alter our 9–12-month view of the economy and financial markets. The situation in Ukraine has deteriorated at a rapid pace in recent weeks, challenging some of our earlier assumptions and raising the risk of a more substantial impairment to global growth—Europe, in particular. As a result, we have reduced our equity overweight, bringing our international developed equities exposure in line with our benchmark. Those proceeds have been added to cash. We retain a modest overweight to U.S. and emerging markets equities.

Reassessing risks

Twenty-four hours after Russia invaded Ukraine, Wilmington Trust held a client webinar outlining our portfolio positioning and two key assumptions necessary to avoid a material downgrade of global economic growth:

  1. No meaningful reduction in supply of oil or gas flowing from Russia
  2. The conflict would evolve in a way that would preserve the infrastructure of Ukraine and avoid a broader commodity supply shock

In the past few days, however, both of these assumptions have broken down, and we have adjusted portfolios as a result.

Over the weekend of February 26, the West united to unleash an unprecedented level of sanctions, including the removal of seven Russian banks from the SWIFT system (which provides services related to the execution of financial transactions and payments between banks worldwide) and sanctioning of the Russian Central Bank. These sanctions will cripple the Russian economy. Noticeably absent were any sanctions touching oil and gas companies or exports directly.

However, the risks of energy supply disruption are rising. Despite policymakers recognizing that restricting energy supply could be quite painful for consumers already reeling from the highest inflation in 40 years, the U.S. has announced a ban on Russian crude imports. So far, European allies are not on board. Russian oil made up 3% of U.S. crude imports in 2021, according to the U.S. Energy Information Association and Bloomberg. These headline risks contributed to oil’s biggest daily swing ever on Monday.

Russia has also threatened retaliation for recently enacted sanctions, which obviously could include shutting off their spigots. Even without overt sanctions on Russian energy exports, there are numerous indirect ways in which supply could be disrupted, including through lack of financing, refusal of shipping companies to accept Russian product, destruction of infrastructure, or “self-sanctioning” by companies and countries. BP took less than a week to decide to pull its 20% stake in Rosneft, the Russian gas goliath. Shell also moved quickly to cut ties with Rosneft. Although Western firms are still technically free to buy Russian output, there are reports of buyers balking, effectively reducing supply from Russia. So far, OPEC does not appear willing or able to add production, though they could step up in the event of an actual supply disruption. Clearly, their existing relationship with Russia and modest spare capacity makes that calculus tricky. A deal with Iran could potentially add as much as one million barrels per day over a matter of months—by far the most meaningful opportunity to offset supply coming offline—but even that “deal with the devil” looks to be at risk due to Russia’s involvement.

There are also increased risks to supply of the broader commodity complex. Our second assumption above posited that—one way or another—the conflict would be resolved over a relatively short timeframe and without complete destruction of Ukrainian infrastructure. Russia and Ukraine produce an outsized global share of many important commodities outside of energy, including wheat, iron, aluminum, palladium, and key semiconductor inputs like neon (Figure 1). With risks building that the war will be extended and with massive destruction to infrastructure, the impact on inflation and supply chains could be significant.

Please see important disclosures at the end of the article.

Disclosures:

    • © 2024 M&T Bank and its affiliates and subsidiaries. All rights reserved.
    • Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation including, but not limited to, Manufacturers & Traders Trust Company (M&T Bank), Wilmington Trust Company (WTC) operating in Delaware only, Wilmington Trust, N.A. (WTNA), Wilmington Trust Investment Advisors, Inc. (WTIA), Wilmington Funds Management Corporation (WFMC), Wilmington Trust Asset Management, LLC (WTAM), and Wilmington Trust Investment Management, LLC (WTIM). Such services include trustee, custodial, agency, investment management, and other services. International corporate and institutional services are offered through M&T Bank Corporation’s international subsidiaries. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank. Member, FDIC. 
    • M&T Bank Corporation’s European subsidiaries (Wilmington Trust (UK) Limited, Wilmington Trust (London) Limited, Wilmington Trust SP Services (London) Limited, Wilmington Trust SP Services (Dublin) Limited, Wilmington Trust SP Services (Frankfurt) GmbH and Wilmington Trust SAS) provide international corporate and institutional services.
    • WTIA, WFMC, WTAM, and WTIM are investment advisors registered with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply any level of skill or training. Additional Information about WTIA, WFMC, WTAM, and WTIM is also available on the SEC's website at adviserinfo.sec.gov. 
    • Private Banking is the marketing name for an offering of M&T Bank deposit and loan products and services.
    • M&T Bank  Equal Housing Lender. Bank NMLS #381076. Member FDIC. 
    • Investment and Insurance Products   • Are NOT Deposits  • Are NOT FDIC Insured  • Are NOT Insured By Any Federal Government Agency  • Have NO Bank Guarantee  • May Go Down In Value  
    • Investing involves risks and you may incur a profit or a loss. Past performance cannot guarantee future results. This material is provided for informational purposes only and is not intended as an offer or solicitation for the sale of any security or service. It is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. There is no assurance that any investment, financial or estate planning strategy will be successful.

    Stay Informed

    Subscribe

    Sign up here to receive insights designed to help you succeed.

    Sign Up Now

    WTU Newsletter Card
    WTU Newsletter Handler