24.02.2023 – Collective denial of reality: A year ago, Russia invaded Ukraine. Some people still don’t want to admit what is driving the Kremlin. The stock market believes that things will somehow sort themselves out – with minimal involvement from the West. That could be a fallacy. We warn of the unexpected.
Pars pro toto, let’s look at the French stock market today – the mood here has been excellent lately. As if nothing had happened, the CAC 40 went up. During the war, of all times, the index has just marked a new all-time high, here the daily chart. The question is how long this will continue.
Source: Bernstein Bank GmbH
Yes, Ukraine is doing better than expected. Yes, the Russians have apparently underestimated the victim’s resilience. Yes, the West is sending weapons – but only ever just enough to prevent Ukraine from collapsing. But the material comes mainly from the USA, Great Britain, Poland. The rest largely ducks away, the quantities of weapons are not enough for a Ukrainian victory. Just don’t provoke the Kremlin too much… Which Moscow registers attentively.
Appeasement is growing
And already cracks in the defences are showing in this country. Not only the pathetic dithering of our government is meant. Russia should be pleased to see how many intellectuals and professors, who had not seen the invasion before, are again calling for peace negotiations. In other words: a surrender of Ukraine, abandonment of the Donbass and Crimea anyway.
But Vladimir Putin does not want talks. He is after something bigger: he wants the restoration of a Greater Russia along the lines of the Soviet Union or the Tsars. Read his speeches. To achieve this goal, he doesn’t care if hundreds of thousands of young Russians die – in a few generations it will be sorted out. Especially when Belarus and the whole of Ukraine have been reintegrated.
Hunger for more
So we suspect these next steps: Russia will launch a new mobilisation. If Ukraine manages a successful counter-offensive, Putin will either be removed. Or he will use nuclear weapons. Perhaps NATO will not respond for fear of World War III. This would be an invitation for Russia to reintegrate the Baltic States into the glorious Russian Empire and close the corridor to Kaliningrad.
We summarise: A commander in Moscow who lives under the delusion of restoring a powerful Greater Russia. A divided West in which the elites all too often dream of a peaceful coexistence with Putin’s Russia. And a stock market that is oblivious to the matter for the time being. But as soon as the reality shocks of an escalation reach the trading floor, many investors will move their money to safety. We still see Ukraine – just as we did in our 2022 outlook when we warned of a Russian invasion – as the biggest threat to the stock market of all. Especially as a retreat by the West and the defeat of Ukraine could put China on the map in Taiwan. Bernstein Bank is keeping an eye on the matter for you.
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