Are the markets forgetting about the war in progress?

Are the markets already used to the war in Ukraine? Last week we watched the biggest stock market rally up since November 2020. Also this week, stock prices remain at this higher level. The increases concerned both the USA, where S & P500 index has increased by over 14 percent since March 7, but also by other markets, including Poland. WIG20 at the same time increased by approx. 7 percent. Too German DAX recorded an increase of over 4 percent.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

Relief came - but for how long?

The market last week felt triple relief. Pierwsza it was about a decision FED on rate hike, in line with expectations by 0,25 pp. The market had been expecting this decision for a long time, fearing the start of a cycle of rate hikes. Now it reacted positively to the implementation of the announced scenario, although further rate hikes are almost certain, their scale in the current situation is difficult to estimate. Increasing inflation on the one hand, but on the other, concerns about the level of economic growth, which is burdened by high commodity prices and problems in logistics chains. There are concerns about the emergence of stagflation, similar to the one that hit the US in the 70s. For the time being, however, the narrative about chasing inflation and the hawkish FED prevails, as can be seen from Monday's rise in US bond yields. This shows that the market expects interest rate hikes to take place at each subsequent FED meeting, and there may be increases of 50 bp.

The second relief came from China, where the MSCI China index has increased by 14 percent since March 16,3. However, since the beginning of the year, it is still 15,5 percent below the mark. The Chinese government has finally decided to help Chinese stocks, which fell almost 70% last year. against US stock prices. And similar companies in China were up to 50 percent. cheaper than their American counterparts. Deputy Prime Minister Liu He announced the end of administrative pressure on Chinese technology companies and others, as well as solving the problems of risk in the development industry. The stock exchange is also helped by the improving condition of the Chinese economy, which, combined with low valuations, makes the Chinese stock exchange attractive. Growth in China has a positive effect on all stock exchanges in the Far East. And also in selected sectors, strongly dependent on the situation on the Chinese market, e.g. luxury goods or e-commerce.

The third element it is a fact that stock exchanges will slowly get used to the uncertainty and risks related to the conflict in Ukraine. Markets await the first effects of peace talks conducted by Ukraine and Russia, but they are stabilizing despite the lack of any positive effects of these talks. This applies to stock exchanges in the world, but above all to the Warsaw stock exchange, which is most sensitive to the situation beyond our eastern border. The stock exchange seems to be moderately positive about the economic outlook for Poland, despite increased budget spending on the admission of refugees and armaments. For example, 0,8-1 million will probably appear in Polish schools in the coming weeks. new students, which is a huge logistical and financial effort, with a total of 4,6 million existing students. However, the market expects that funds from the National Reconstruction Program will be released soon, which, instead of supporting companies after the pandemic, will be allocated to expenses related to the admission of Ukrainian refugees.

Strong technology companies

The current surges on the stock exchanges were hit hardest by previously discounted technology companies and cyclical companies from the consumer market (car, real estate, commercial and entertainment companies). There is no doubt, however, that while the markets are growing and are particularly sensitive to positive news, we will still be dealing with increased volatility. In the event of a war in Ukraine, the markets will get used to the "new normal" that is war, rather than valuing any positive information about the conflict.