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Please see below article received from Waverton yesterday afternoon, which provides an update on the abhorrent war in Ukraine and advises investors to remain steadfast.

Sadly, the war in Ukraine continues. The news changes hour-by-hour, but, at the time of writing, there is speculation of a potential meeting between the respective foreign ministers, and there has been a successful evacuation of civilians from Sumy, in north-eastern Ukraine. Stark contrast to the shelling of a nuclear power station just days ago.

Despite the apparent progress that a meeting might suggest, 24 hours ago President Zelensky was channelling Churchill by saying “we’ll fight in the forests, on the shores, in the streets”. Any peace deal at the moment would likely require a significant move in the stance of one or both sides, something that currently seems relatively unlikely. Should peace break out, however, then this would likely buoy the markets.

The market reaction thus far has been largely explainable, though often volatile. Europe’s proximity to the fighting and associated disruption has meant that reaction has been most acute there. Russia and Ukraine are important producers of a wide range of commodities. The war has led to a sharp increase in the price of many raw materials thanks to concern about supply disruption. Many Russian assets have collapsed in value, not least because of the wide-ranging and coordinated sanctions against the country.

At Waverton we do not hold any Russian equities or bonds directly. We also do not hold any companies with significant dealings in Russia, though, of course, large multinational companies will likely have some exposure. Russian investments owned in third-party funds that we hold are small. Russian exposure can realistically be measured as a fraction of one percent in any Waverton portfolio.

Inflation was a significant issue even before the invasion. The war will compound the problem via higher commodity prices, and further supply chain disruption.

The combination of both elevated inflation and geopolitical uncertainty has meant that economic growth expectations have been lowered, particularly in Europe, raising the spectre of “stagflation” (a term coined in the 1960’s that was mainstream in the 1970’s). That outcome would make life difficult for central bankers, as raising rates to quell inflation will also negatively impact demand and therefore economic growth.

We are continuing to watch developments closely. We have a neutral Equities position in portfolios and have added to bond and alternatives exposure with a focus in the latter on real assets with inflation linked cashflows.

We continue to have faith in our tried and tested investment process. This is not a time to make hasty judgements. Any outbreak of peace would be a significant short-term boost to markets but the level of inflation and the likelihood of tighter monetary policy ahead remain challenges to the outlook for economic activity and corporate earnings.

Please check in again with us shortly for further relevant content and news.

Chloe

10/03/2022