Investors should wait to buy the dip in stocks as instability from Russia-Ukraine crisis is set to persist, asset manager says

• Investors should hold back from buying the dip in stocks with global markets shaken by Russia's invasion of Ukraine, said Generali Investments.
• Risks are tilted towards a more protracted rise in energy costs, which could hurt global growth and the earnings outlook.

Global stocks have been shaken by Russia's deadly invasion of Ukraine, but investors should hold back from buying discounted equities and consider cash until the situation in the former Soviet republic markedly improves, said Generali Investments.

In the US, the S&P 500 fell further into correction territory Tuesday, with its intraday low marking a drop of 11% from its all-time high of 4,818.62 in early January. The financial, materials and information technology sectors lost the most during the day as Moscow reportedly threatened strikes against Ukraine's capital Kyiv, while Ukraine's second-largest city of Kharkiv was hit by Russian missiles. Western officials, meanwhile, warned of potential attacks on civilians.

"We see no rush to buy the dips, waiting for more stability in the geopolitical and energy complexes," said Vincent Chaigneau and Thomas Hempell, Generali's head of research and head of macro & market Research, respectively, in a note Tuesday.

They said Russia's invasion of Ukraine adds to the "series of tectonic shifts" in the market — from the COVID pandemic, to the return of inflation, and the search by central banks for a smooth exit from their emergency responses to the pandemic.

Adding to the inflationary pressure is a surge in oil prices, sparked by concerns about supply shortages stemming from the crisis in Europe. Brent crude prices soared above $107 a barrel on Tuesday, the highest since 2014.

The analysts said markets had quickly discounted the sharp rise in political uncertainty and another decline of 5% to 7% would push EU and US risk premia to historically attractive levels.

"But we see the risks tilted towards a more protracted rise in energy costs, which may threaten the growth and earnings outlook. So buying the dips looks premature in this highly volatile environment," Chaigneau and Hempell said. "Increase cash positions for now with the aim of redeploying risk when we get more geopolitical and energy price stability."

Generali said its model portfolio lost another 9.1% in relative terms with cash and corporate credit the only significant positive contributors.