Market review 7 March: Why has the Ukraine crisis hit Finnish stocks so hard?


What is the general market outlook right now?

The crisis in Ukraine has caused stock prices to plummet in Europe, especially on the Helsinki stock exchange. Stock price performance on the US, Japanese and emerging markets has been less dramatic. Russia’s stock market has been closed to foreign investors for a week.

As the global growth outlook has become more moderate, the interest rate level has fallen, while the credit risk premiums on corporate bonds have risen. The price of oil is experiencing a strong growth trend, while the dollar has appreciated due to demand for safe havens. The rouble has crashed as a result of Western sanctions.

What were the inflation figures like in the euro zone last week?

Euro zone inflation was slightly higher than expected in February. The change in the consumer index measuring headline inflation was +5.8% year-on-year (+5.1% in January), which was slightly more than expected. Similarly, the narrower core inflation (the focus of central bankers), which excludes changes in the price of energy and food, rose +2.7% (+2.5% in January). The figure was also slightly higher than anticipated.

The statutory meeting of the European Central Bank will be held on Thursday, 10 March. What are the expectations for the meeting?

The ECB is expected to end the emergency purchase programme that it started due to the pandemic. Correspondingly, purchases in the programme underway prior to the pandemic will be increased moderately. The idea is to reduce the sudden impact that would result from terminating the emergency purchase programme. However, the dominant expectations are that the purchases will be reduced.

In the radically altered economic environment, the statement by President Lagarde will attract more than the normal amount of interest. In particular, market parties are expecting insight into inflation development in the euro zone and indications of the central bank’s readiness to increase its purchase programmes if necessary.

Will the USA’s stronger-than-expected labour market report bring relief to the Fed, which is struggling with high inflation and increasing uncertainty?

The US labour market report in February was stronger than expected, and the increase in payrolls was dampened.

In February, 678,000 new jobs were created, compared to the 400,000 new jobs expected by the markets. The unemployment rate fell slightly further to 3.8%, which is close to the lowest pre-pandemic levels.

Average hourly wages rose +5.1%, compared to January’s restated figure +5.5%. The Fed, which is struggling with high inflation and increasing uncertainty, is likely to sigh with relief at the possible easing off of wage inflation. An individual reading does not necessarily mean a turnaround in the trend, however.

What inflation expectations do the markets have in the longer term?

Long-term inflation expectations have risen moderately.

The inflation priced in by the markets for the 5-year period starting in 5 years is now just over 2.5% in the USA and just over two per cent in Europe. The markets thus presume that, even though inflation is currently elevated, in the long run, the central banks can push it back down close to their target level.

Why has the Ukraine crisis hit Finnish stocks so hard?

The Ukraine crisis has hit Finnish stocks especially hard.

Compared to other markets, Finnish companies are assumed to have considerable ties to Russia, although this is not, of course, true for all companies. For global investors, the Finnish market is not as familiar and stocks are being sold as a precaution.

The US, Japanese and emerging markets have reacted more moderately to the crisis.

Have changes been made to Mandatum’s portfolios?

The outlook is unusually cloudy. It is currently difficult to assess the impact of the already-imposed sanctions on economic growth, inflation and monetary policy. Forecasting the developments in geopolitical crises is always difficult and the situation can change suddenly. In our view, making hasty decisions in one direction or the other should be avoided right now.

  • The total risk level in our portfolios was moderate at the start of the year. We have not made any significant changes in our risk level.
  • In the USA, the crisis and the sanctions will have less severe economic impacts than in Europe. This has also been reflected in market reactions. In our equity investments we have increased the US share (now approx. 40%) and correspondingly reduced European equities (Europe incl. Nordic countries now approx. 38%).
  • We have slightly increased the share of risky investments in our fixed income investments, and correspondingly reduced cash.
  • The portfolios still contain plenty of cash, which will enable us to jump on opportunities when they arise.


Nothing presented here is or should be taken as an investment recommendation or solicitation to subscribe for, buy or sell securities. When making investment decisions, the investor must carefully familiarise themselves with the information given on the financial instruments and understand the related risks. The investor must base their decision on their own assessment, goals and financial situation. Risk is always inherent in investment activities. The value of the investment instruments may increase or decrease. The past performance of investment instruments is no guarantee of future performance.

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