One year after the Russian invasion of Ukraine: Impact on European equity markets

Top 10 Takeaways:

1. Russian equity market has not recovered from its worst crash in decades
2. Russian equites recorded the largest monthly loss in February 2022 in at least 24 years
3. Reduced trading activity has brought down Russia’s risk from March peak
4. Russia’s risk no longer stands out among other emerging markets
5. After exceeding highs from prior currency crises, ruble’s risk has now plunged
6. Risk is higher than pre-war levels for most emerging currencies except for Turkish Lira (TRY) and Mexican Peso (MXN)
7. All countries in the STOXX^® Europe 600 index posted 2022 losses except for Portugal
8. Germany was the biggest contributor to the European index’s 2022 loss
9. The Energy sector was the big winner following Russia’s invasion of Ukraine
10. Developed Europe has outperformed the US, Asia and Global markets

1. Russian equity market has not recovered from its worst crash in decades

Source: Qontigo

• Russia and Ukraine’s markets fell 29% and 15% (in terms of US dollars), respectively, on the day Russia invaded Ukraine—24 Feb 2022.
• The Russian stock market was closed for nearly one month after the day of the Russia’s invasion—the longest closure since 1998.
• Russian stocks dropped further 31% on Monday, Feb. 28.
• By March 7, Russia’s 2022 YTD cumulative return was -70% and Ukraine’s was -34%.
• Both markets recovered somewhat, but Russia has been greatly underperforming both Ukraine and Emerging Markets in aggregate.
• Russian stocks have been excluded from major indices, reducing the trading activity in these stocks, and therefore the volatility of the Russian market.

Back to the top >

2. Russian equities recorded the largest monthly loss in February 2022 in at least 24 years

• Feb 2022 saw the largest monthly decline in Russian stocks, of 55% (USD), larger than Aug-98 (of 42%) during the Russia Default Crisis
• Subsequent months saw smaller swings in the Russian market, as trading of Russian stocks was limited

Back to the top >

3. Reduced trading activity has brought down Russia’s risk from March peak

Russia’s risk saw the largest jump in 25 years. By March 7, its short-horizon risk of 125% exceeded the highs seen during the Global Financial Crisis, but it remained below the 1998 peak of nearly 140%. The lack of trading in Russian stocks was probably the driving force in bringing down volatility in the following months.

Back to the top >

4. Russia’s risk no longer stands out among other emerging markets

Source: Qontigo

• Most emerging countries’ “extra-market” risk is now higher than it was before the war
• Russia’s risk stood out in March 2022, but it has come down substantially
• Russia’s extra-market risk is now lower than that of Turkey and Morocco
• Extra-market risk is the risk related to the country over and above that of other risk-model factors, which can be interpreted as how similar to, or different from, the country is from the overall emerging markets.

Back to the top >

5. After exceeding highs from prior currency crises, ruble’s risk has now plunged

• The Russian currency hit a record low against the US dollar in March 2022, but it has since rebounded, following President Putin’s demand for payment in rubles for Russian gas.
• The risk of the ruble skyrocketed, with its peak of 58% reached on May 31, 2022, exceeding the highs seen during the Ruble Crisis in 1998 – the highest in recent history.
• The risk of the ruble has come down abruptly, but still exceeds that of the Turkish lira and Brazilian real currently.
• The Ukrainian (UAH) currency’s risk remained relatively low compared to the high levels of currency risk seen in other crises.

Source: Qontigo

Back to the top >

6. Risk is higher than pre-war levels for most emerging currencies except for Turkish Lira (TRY) and Mexican Peso (MXN)

Back to the top >

7. All countries in the STOXX^® Europe 600 index posted 2022 losses except for Portugal

Source: Qontigo

• All countries in the STOXX Europe 600 index posted 2022 losses, except for Portugal. Sweden saw the largest loss.
• Interestingly, most European countries recorded 12-month gains before and after February 24. Only Norway and Poland saw losses for the Feb 2022-Feb 2023 period.
• Denmark, Spain and Portugal saw the biggest gains in the 12 months after the war started.

Back to the top >

8. Germany was the biggest contributor to the European index’s 2022 loss

• Despite remaining the largest country (by weight) in the STOXX Europe 600 Index, UK’s contribution to the index’s 2022 loss was not the largest.
• Germany had the biggest negative contribution to the index’s 2022 loss of 10%, followed by Switzerland and Sweden.

Back to the top >

9. The Energy sector was the big winner following Russia’s invasion of Ukraine

• Energy’s 2022 gain of 36.5% exceeded its 2021 gain, while all other GICS 2018 sectors in the STOXX Europe 600 Index posted losses in 2022.
• Energy also recorded the highest positive return (of 28%) among all European sectors in the 12 months after the start of the war.
• European Real Estate suffered the most, its 2022 loss exceeding that of Info Tech—both sectors being severely battered by the recent interest rate increases.
• Financials, Industrials, Consumer Discretionary and Info Tech’s contributions to index risk greatly exceeded their respective sector weights at the end of 2022.

Back to the top >

10. Developed Europe has outperformed the US, Asia and Global markets

• Developed Europe now outperforms the US, Asia and the Global markets.
• STOXX Europe 600 Index’s 2022-2023 YTD return nears zero, while the three other regions are deep in negative territory.
• Bear in mind that the European index does not hold Russian stocks.
• Still, the European index’s volatility lags that of the STOXX USA 900 Index, STOXX Asia/Pacific and STOXX Global 1800 Index.

Back to the top >

For questions or comments about this data, please contact the Qontigo Applied Research team.