Finimize - 🇷🇺 The Russian threat is growing

Hi Reader, here's what you need to know for February 15th in 3:05 minutes.

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Today's big stories

Energy prices soared amid rising geopolitical tensions
Goldman Sachs has handpicked a bunch of small-cap stocks that could outperform their bigger rivals – Read Now
Life Insurance Corporation of India filed for an initial public offering

Antisocial Distancing

What’s Going On Here?

The US government warned over the weekend that Russia could invade Ukraine as soon as this week.

What Does This Mean?

Russia has spent weeks assuring wary onlookers that it has no intentions of invading Ukraine, but this isn’t the US’s first rodeo: its government just declared that the move might only be a matter of days away. That made investors nervous – not least because Russia is the biggest supplier of natural gas to Europe, with about a third of its exports flowing through Ukrainian pipelines. It’s the world’s third-biggest oil producer too, meaning any conflict could threaten supplies of the slippery elixir. All that to say, this might be why European natural gas and electricity prices rose more than 10% on Monday, and why the price of oil hit a seven-year high.

Why Should I Care?

For markets: Dinner’s on you.
Oil’s price now sits at $93 a barrel, with some analysts expecting it to hit as much as $100 by the end of February. And if that happens, Bloomberg has calculated that European and US inflation will be around half a percentage point higher in the second half of this year than it would’ve been otherwise. Consider too that Russia and Ukraine account for nearly a third of wheat and barley exports between them, which would mean any conflict could limit their supply and push overall inflation up even higher.

The bigger picture: The economy cannae take it.
Consumer spending is bound to be hit by these higher energy and food bills, which would have major consequences for economic growth. Higher inflation could likewise force central banks to raise interest rates faster than planned, which would discourage borrowing and spending even more. So Morgan Stanley might have a point: the investment bank said on Monday that the Russia-Ukraine conflict could end up pushing the global economy into recession (tweet this).

You might also like: How to profit from these rising energy prices.

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Analyst Take

Can Small Stocks Outmuscle Their Bigger Rivals?

Carl Hazeley, Analyst

What’s Going On Here?

US small-cap stocks haven’t exactly covered themselves in glory lately.

Just look at the Russell 2000: the key US small cap index is down 7% compared to the large cap S&P 500’s 19% rise in the last twelve months – its worst relative performance since 1999.

And frankly, the next twelve months don’t look much better, with the slowdown in economic growth set to continue and central banks set to withdraw their support.

But here’s the thing: when inflation is above 5%, it’s small stocks – not large caps or corporate bonds – that provide investors with the best chance of delivering inflation-beating returns.

So that’s today’s Insight: Goldman Sachs’ handpicked small caps that could be about to buck the trend.

Read or listen to the Insight here

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