23 march 2022


Welcome to CLEARCUT, a monthly discussion on macro and allocation


  • Investors are still unpacking Russian dolls to find out the implications of the conflict in Ukraine: energy, inflation, growth, policy.
  • Market prices reflect a positive stance and swift de-escalation. While this is our central scenario, risks are now negatively skewed.
  • We are positive in fixed income in general, and euro credit in particular. Stay invested in commodities as fundamentals are durably tight.
  • We remain cautious in equities overall, where risks have shifted from multiples to earnings. Some segments look attractive though.


Full swing_ Markets continued to prove nervous in March, with our key risk factors – Ukraine and the Fed – playing out in full. While uncertainty remains large for the conflict, markets have already taken a stance, judging from the recent rebound. As for the Fed, uncertainty about the economic scenario over the coming 12 months is increasing. What does this all mean for allocations?

Act first, speak later_ The conflict in Ukraine has evidently dominated headlines over the past month. After a catastrophic start for Russia, which initiated a poorly prepared invasion that ended up a PR disaster, the cost of this war is proving massive in terms of lives taken and economic losses. First estimates of the GDP decline in Russia this year are around 10-15%, well above the combined shocks of 2008 and 2014. The only viable option for Russia is therefore to win this war quickly. Occupying Ukraine would prove a military quagmire echoing old memories from Afghanistan, while letting sanctions drag on would risk jeopardising the country’s stability. As a result, our main scenario is for Russia to maximise its chance to win on the ground by mobilising troops and equipment. Only after that phase is complete are we going to see proper diplomacy.

Thorny issues_ Negotiations have already progressed, according to recent declarations from Turkish envoys brokering the deal. Ukraine and Russia may be close to an agreement on the demilitarisation of Ukraine and its strategic neutrality. In our view though, this is unlikely to be the full list of Kremlin’s demands. First, Russia is eying some Ukrainian territories, either through annexation or vassalized independent states. Second, it is far from clear that V. Putin will accept the current Ukrainian government to stay in place after he wins. Third, Russia may demand guarantees well beyond Ukraine in terms of who is allowed or not to join the Western alliances (NATO & EU).