1. The Russia-Ukraine conflict dominated global headlines and rattled financial markets after Russia invaded Ukraine. Aside from the tragic humanitarian impact, a major consequence of the conflict has been a surge in commodity prices on expectations of weaker supplies, as both countries are major exporters of energy and agricultural commodities. The longer-term impact of the energy shortage could also result in an acceleration in the pace of decarbonisation, especially in Europe as it may work toward reducing its dependence on Russian gas. Markets are entering uncharted territory in terms of the implications of a war on Europe’s borders.

2. We expect to see different outcomes for different regions and believe that markets in Asia and Latin America could be relatively more insulated from the heightened geopolitical risk in Europe. Oil producers in the Middle East are also beneficiaries of higher oil prices. As energy costs rise, we could also see a faster shift to renewables and electrification. Apart from China and to a lesser extent South Korea, emerging Asia has limited direct trade exposure to Russia and Ukraine. Higher commodity prices could, however, impact the region which, except for Malaysia and Indonesia, is a net energy importer. In resource-rich Latin America, energy and mining companies stand to benefit from higher prices and supply shortages. With limited direct trade with Russia and Ukraine, the impact on corporate earnings generally across the region could also to be limited as these countries account for a marginal part of their revenues.

3. Brazil defied the global market rout in February to end the month higher. The MSCI Brazil Index rose 18% in the first two months of the year, outperforming the MSCI Emerging Markets Index and the MSCI World Index. As the world’s fourth-largest commodity exporter, the continuation of last year’s commodity price surge amid global supply concerns from the Russia-Ukraine conflict has been good news for Brazil’s commodity exports, economy and market. The country is the biggest exporter of soybeans and coffee, and the second-biggest exporter of corn and iron ore. Surging commodity prices are leading analysts to raise earnings forecasts in Brazil. The consensus estimate for 12-month forward earnings per share in Brazil is up 6% year-to-date. Despite the stock market’s recent climb, valuations look appealing.

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