Russian Invasion

 26 Feb 2022

Dear Fellow Investor,

The shock news on Wednesday 24 Feb was the Russian invasion of Ukraine.

The Dow Jones on Wednesday plunged 560 points and on Thursday fell   an additional 870 points but late in the day reversed and closed slightly positive. On Friday the market followed through with an additional 834 points closing just above weekly support.   All the major world indexes closed in positive territory. Expect world markets including Singapore, Hong Kong and Malaysia to be well supported next week.

My analysis last week that Russia would not invade and there would be an agreement was wrong.  However; our investments did not lose. It was reported that the Federal Reserve will not be aggressive on interest rate rises because of the Ukraine conflict. Aggressive interest rate rises by the US Fed are presently the main fear dominating markets. The Fed interest rate announcement was the catalyst for market recovery. That took precedence over the war.

Commodities across the board are rising.

The CRB index holds 19 commodities including 39 % energy,41 % agriculture, 7 % precious metals and 13 % industrial metals. 

Inflation and war are good for commodities. Notice the persistent up trend in the CRB. Stock markets will also benefit especially those related to energy, logistics and plantations. If interest rates rise gradually expect banks and finance companies to prosper.   

As supply chains gradually open and the Covid pandemic becomes endemic expect stock market recovery especially technology. Those technology companies with growing sales, earnings and revenues should be favoured. Those with high debts and low revenues should be avoided.  

On 21 February, I attended a zoom briefing on Nidec, the world’s largest manufacture of micro electric motors by analyst Masashi Mizuno of Affin Hwang. Despite the pandemic, revenue, sales, and earnings are growing. The financials are healthy. I asked how they are affected by semiconductor shortages and they said as supply chains return to normal it should not be an issue.  Presently they are coping. The other issue I raised was the rising copper price as a major component of electric motors is copper. Mr Mizuno said they were finding ways to address this issue by innovation. Nidec has a large research facility in Kyoto with many scientists and engineers who can adapt to changing market conditions and this is their competitive advantage.

Take care, Bill