Weekly Research Briefing: Nine Billion to 'One'

March 08, 2022

If only '60 Minutes' had been broadcast into Moscow on Sunday night, this Russian invasion might be over today. It was heartbreaking to see the trains full of mothers and children rolling into Poland. It is unreal that 1.5 million Ukrainians have crossed the border into Europe. Of course, even more amazing is that over 40 million citizens remain in Ukraine with many having no plans on leaving. Incredible work by all the journalists on the ground reporting the stories.

While the invasion continues in Ukraine, almost every conceivable economic action possible against Russia has been implemented in the last two weeks. There are a few major items left, like an embargo on Russian energy exports and a full seizure of foreign assets, but those are being chipped away at. Tough to buy Russian oil if you can’t pay for it or ensure its transport. And difficult to vacation on your 200-foot yacht when it is tied to a buoy in the middle of the Indian Ocean along with 50 other super yachts. But for most Russian citizens, imagine a new life with hyper-inflation, no electronic payment mechanisms, even more empty store shelves, a closure of all foreign retailers and restaurants, no airplanes at the airports, no international sports and, as of this weekend, no independent news. There is a reason why the young and educated are dashing out of the country. Those trains leaving for Finland are not filled with winter sports enthusiasts. They are filled with Russians holding a one-way ticket and taking two suitcases of personal belongings.

Right now, the whole world has Ukraine's back. Every day that Ukraine pushes back is another day of new economic difficulties for Russia, its government and its oligarchs. It is tough to imagine that anyone in Russia wants this invasion right now. The conversations and strategies to change the mind of 'One' must be intense right now. Seeing the Reuters headline today at the end of the Russia/Ukraine talks did give me a new hope that Russia might be setting the table for a deal. We can only hope this is the beginning of a meaningful negotiation to end this invasion and begin restoring peace in the area.

A small advance in the third round of talks today...

While today's proposals by Russia are currently unacceptable to Ukraine, the fact that we do have a starting point offered by Moscow should suggest that we are one step closer to ending this military invasion. Now let the real negotiations begin.

LONDON, March 7 - Russia has told Ukraine it is ready to halt military operations "in a moment" if Kyiv meets a list of conditions, the Kremlin spokesman said on Monday.

Dmitry Peskov said Moscow was demanding that Ukraine cease military action, change its constitution to enshrine neutrality, acknowledge Crimea as Russian territory, and recognise the separatist republics of Donetsk and Lugansk as independent states.

It was the most explicit Russian statement so far of the terms it wants to impose on Ukraine to halt what it calls its "special military operation", now in its 12th day.

Peskov told Reuters in a telephone interview that Ukraine was aware of the conditions. "And they were told that all this can be stopped in a moment."


The most important economic measure for Russia right now...

As all foreign economic activity has withdrawn from Russia, no one needs its currency for trade and few think that it will have value in the future as its economy implodes.

USD/RUB inverted

The Daily Shot

MSCI removes Russian securities from all emerging markets indexes...

Think of the dislocation this has caused when the securities are unable to trade on a listed market.

MSCI to Reclassify the MSCI Russia Indexes

It will be a tough year for any firm with Russian exposures...

With the markets no longer trading the publicly-listed assets, the most likely scenario is for a 'bad bank' side car to be created which will buy the assets for a heavily discounted price. These side cars could then be sold or held by the remaining investors in an attempt to get a recovery at a future date. But it will relieve the fiduciaries of the entity from holding daily, monthly or quarterly Russian security pricing meetings.

BlackRock is among a large group of global investors, from pension plans, to hedge funds, and allocators of sovereign wealth, who hold Russian assets that were worth almost $170bn at the end of 2021. Moscow’s equity markets are suspended, trading in many Russian companies listed abroad is halted, and bonds are almost impossible to trade. That leaves these asset managers facing the prospect of deep losses.

“If you’re left holding Russian assets either you sell at a very low price, assuming that it’s possible and you can actually find a buyer,” said Cristian Maggio, head of emerging markets portfolio strategy at TD Securities. “Otherwise you may have to write them off to zero.”

In markets where Russian assets are still changing hands, prices have collapsed. Russia’s dollar debt is trading at roughly 20 cents on the dollar, while an MSCI index tracking Russian stocks traded in London and New York is down more than 95 per cent this year...

So far at least 26 asset management companies including JPMorgan, BlackRock, Amundi, UBS, BNP Paribas, Abrdn, Schroders and Pictet have frozen funds with significant Russia exposure, stopping investors from moving their more than €4bn in combined assets out of the strategies.

More are expected to follow. Foreign holdings of Russian equities totalled $86bn at the end of 2021, Moscow Exchange data show. Foreign investors also held $20bn of Russia’s dollar debt and rouble-denominated sovereign bonds worth $41bn, according to the central bank, while JPMorgan estimates corporate debt holdings at $21bn.

The chief executive of Norway’s $1.3tn oil fund said its Russian holdings might be worthless after tumbling in value by 90 per cent in two weeks.

Financial Times

Just like that, all four major global accounting firms end their Russian firms...

That would make for 15,900 more train tickets to Finland purchased and likely an end to Russian firms raising capital internationally.

The Big Four accounting firms are cutting ties with their Russian operations, walking away from businesses built up over decades that between them employ more than 15,900 people.

It took less than two weeks from the invasion of Ukraine for Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers to decide to leave Russia.

For at least some of the firms, finalizing their exit will likely take months, according to people close to the Big Four. And the repercussions of their move may last for years.

“It’s an absolutely unprecedented situation,” one of the people close to the firms said. “If you’d said a few weeks ago, [most of] the Big Four would sever links with their Russian partners, I’d have said ‘what are you smoking?’”...

The speed at which Russia has been transformed into a pariah state appears to have caught the accounting firms by surprise. Some of their websites had yet to be updated early Monday. “KPMG has been rated the No. 1 Audit firm in Russia since 2009,” that firm’s website read.

The firms’ exit creates another obstacle to an eventual re-entry of big Russian companies to the global financial markets. The lack of a Big Four auditor would likely make it harder for those companies to raise money overseas. It could also prove a barrier to Russian companies listing on U.S. stock exchanges.


Apple ceased of all of its operations and services in Russia. Given this change in their maps, I don't think they plan on returning...

@Billbrowder: This is really funny. Now that Apple has left Russia, Apple Maps has put Crimea back in Ukraine

Crimea map on Apple Maps

The easiest way to inflict economic pain on Russia would be to stop buying its energy…

Russia accounts for less than 2% of global goods trade and GDP. It is considerably larger in oil, where it supplies 11% of global consumption. And it is huge in natural gas, with Russia supplying 17% of global consumption and as much as 40% of Western European consumption as of 2021.

Goldman Sachs

A Medium-Sized Economy with a Huge Energy Sector

But as this chart shows, ending Russian gas purchases cannot be done overnight...

While the U.K. is in a good position to end Russian gas buying, it will take a while for Italy and Germany to wean off of their eastern supplier.


Dependence on Russian gas is an important measure of a country's vulnerability (also: access to alternatives).

But the role of gas matters too: many countries rely heavily on Russia but don't rely heavily on gas.

My crude (and slightly dated) effort to map this juxtaposition.

European Reliance on Russian Gas Imports and on Gas for Energy

Much of the world has pulled back from buying Russian oil as this spread chart shows...

Self-sanctioning is already well underway in the oil market

Goldman Sachs

Europe has been working on ways to move its eight billion euro in energy purchases with Russia closer to zero...

Eurozone imports of coal, petroleum, natural gas and other fuels from Russia, monthly

The concern over a natural gas embargo has led to a significant spike in prices...

The war in Ukraine has ended the notion that natural gas is a reliable transition fuel for Europe, but it will still need to rely on it for years to come.

European gas futures jumped more than 40% Monday to touch a record $101 a million British thermal units, more than 20 times the U.S. price. While there hasn’t been as much talk of sanctions on natural gas as on oil, commodity traders may be assuming the former could get caught up in the growing web of Western restrictions on economic ties with Russia.

Until recently, gas was the cleaner-than-coal fossil fuel many European countries were counting on to smooth their transition to renewable energy. That was despite a heavy reliance on imports from Russia, which accounts for roughly 40% of supplies. But this is the third time this winter that spot prices have soared. Even before Russia’s attack on Ukraine shattered any remaining illusion that it is a reliable energy partner, Europe was planning to cut its dependence on Moscow.

Eurozone gas futures, daily peak price


But every crisis is an opportunity...

The European Union’s executive arm is mapping out a path to end the bloc’s reliance on Russian gas that could see import needs cut by almost 80% this year, according to two officials with knowledge of the matter.

The European Commission is revising its energy strategy after President Vladimir Putin’s invasion of Ukraine in an effort to reduce the Kremlin’s leverage. The plan, to be presented Tuesday, will propose steps such as tapping new gas supplies and increasing energy efficiency already this year, one of the officials said, and aims to deliver independence from the region’s biggest supplier of the fossil fuel well before 2030 -- sooner than previous projections...

“I think we can present a plan tomorrow that will substantially reduce our dependency on Russian gas already this year and within years will make us independent of the import of Russian gas,” the EU’s climate chief, Frans Timmermans, said before the European Parliament on Monday evening. “I think that’s possible. It’s not easy, but it’s feasible.”...

The commission considers that the EU already has sufficient gas to get through the rest of this winter even in the event of an abrupt disruption of Russian supplies, according to people familiar with the assessment. The bloc’s executive arm will recommend that member states start work now on filling up storage tanks so they’re prepared for next winter.


With the Ukrainian planting season just ahead of us, wheat prices are worried that they won't be able to have a harvest this year...

Expect U.S. farmers to shift some of their crops toward wheat to take advantage of the shortages this year.

CBOT Soft Red Winter Wheat

The Daily Shot

The Ukraine invasion has led to more commodities than just oil, gas and wheat surging to highs…

@Schuldensuehner: To put things into perspective: Last week the CRB Commodity Index saw the biggest gain on record (+13.4%), eclipsing anything seen in the 1970s, DB reports.

Weekly Movement in Thomson Reuters Core Commodity CRB Index

A reminder that commodity price shocks often revolve around times of conflict...

@carlquintanilla: “War is inflationary,” says B of A’s Hartnett. “Strongest start to any year since 1915 for commodity prices.”

Strongest start to any year since 1915 for commodity prices

Equity investors are the most jittery in two years...

Fear & Greed Index


Big tech investors are on their second cup of jittery...


The Daily Shot

What an incredible 12-month reversal for the long energy / short tech trade...

@bespokeinvest: The ratio of the S&P 500 Tech to Energy sector has been cut in half over the last 4 months.

Ratio of S&P 500 Tech to Energy Sectors

2022 was supposed to be a good year for U.S. airline stocks...

The stock prices tell me that rising passenger counts, and ticket prices will not be able to offset the rise in fuel costs.

US Global Jets ETF

European stock performance has been tough since the invasion. But Euro banks have been hit especially hard...

Here is the Deutsche Bank chart which was just last month on the verge of looking unstoppable. Throw in a worry over Russian/Ukrainian loan exposures plus a soaring German Bund and you had a recipe for a brutal pullback.

Deutsche Bank AG


But not all stocks are falling. Here is a run of charts that were making all-time highs today:

First the ATNHs in the Energy sector...

See the big oils, big natural gas, and liquified natural gas names.

Energy Sector stocks

Then in the industrial sector...

Railroad stocks looking to benefit from a big year of commodity shipping. Deere popping as the world looks to the grain industry. A slug of defense company stocks lining up to benefit from an acceleration of defense spending in Europe.

Industrial Sector stocks

In the consumer staples sector...

I see Archer Daniels Midland as the big grain play, grocery stores and other defensive food names as investors look for a place to hide.

Consumer Staples Sector stocks

Among basic materials...

The big gold miner and the fertilizer companies are just following their commodity prices higher.

Basic Materials Sector stocks

In healthcare, the drug/dental distributors are hitting ATNHs as medical/dental spending patterns return post-COVID...

Drug/Dental Distributors

While pharma stocks are not breaking out to all-time new highs, they are putting in a bout of outperformance here as the market rotates...

@RenMacLLC: HC has been disappointing, particularly are we've entered a late-cycle equity environment. As life-science and tools have weakened, Pharma's relative performance turned positive late last week.

Pharma stocks

Not to be ignored, the U.S. had a very strong jobs number last week...

US Nonfarm Payrolls MoM

The Daily Shot

Rising wages must be incenting both the young and older to run back to the job markets...

Civilian Labor Force Participation Rate

The Daily Shot

The job market is on fire for those without a diploma...

@LizAnnSonders: Unemployment rate for those with less than high school diploma has tanked to all-time low

US Unemployment Rate Less Than High School Diploma

Clearly the ride sharing companies love it when everyone has a job...

UBER ; boosted its outlook for Q1 core profit, guiding Ebitda $130M-$150M from prior $100M-$130M saying its ride hailing business was recovering faster than expected

Hammerstone Markets

Homebuilders also love it when everyone has a job because they can eliminate marketing spending...

Green Brick Partners Inc (GRBK): Our current metrics for evaluating demand have been significantly impacted by supply chain challenges beyond our control, and we believe are not truly indicative of how strong the demand for new homes is. Here, you will see a few case studies we have documented to really illustrate what our boots on the ground teams are seeing. For example, at Ecco Park, one of our townhome communities in Atlanta, Georgia, our division released 4 home sites to an interest list of over 2,200 prospective homebuyers. To accommodate for this incredible demand, we revised our sales strategy to operate on a bidding system. In Dallas-Fort Worth, our biggest market, we have seen similar stories with demand far exceeding the number of lots released for sale. In addition to reducing incentives, we have significantly cut back on marketing spend. For example, in one Texas community of 58 townhomes, we were able to generate an interest list of over 350 people with no digital marketing and using a single sign.

Triangulated Research

The fire has been lit on U.S. capital expenditures...

Industrial Machinery Manufacturing Orders

The Daily Shot

Gasoline prices are back to 2008 and 2011 prices for those without electric cars...

AAA Daily National Average Gasoline Price

The Daily Shot

But while gas prices are up, anything that you consume from overseas is falling...

Bloomberg Dollar Spot Index

The Daily Shot

It is easy to get caught up in the headlines and feel like inflation is going to the moon...

But falling auto, furniture, rent and even energy prices will become heavy to the U.S. CPI later this year.

Consumer-price-index, 12-month change


Low wage workers are now earning higher than the inflation rate as those salaries are rising faster due to that very low unemployment rate for no diploma workers...

@carlquintanilla: MORGAN STANLEY: “.. real wages are negative for middle and high income groups but positive for the lowest income tercile. We expect real wages in aggregate to turn positive around mid-2022 as inflation eases, and pay rates remain above trend throughout the year.”

Labor Compensation Rising Fast

While the Fed has much to chew on for the March FOMC meeting, the market is still thinking +25 basis points...

Target Rate Probabilities For 16 Mar 2022 Fed Meeting


Finally, sometimes the best ideas are the simplest...

While solar farms are a great source of green energy, many people don't like the fact that they occupy land which could otherwise be utilized for agriculture or housing. A new project is exploring an alternative, by placing solar panels over canals that will benefit from the shade...

The basic idea is that instead of placing arrays of photovoltaic panels on land that could be used for other purposes, those panels will instead be installed over lengths of existing irrigation canals. Not only is that space not really usable for much else, but the shading effect of the panels should significantly reduce evaporation and weed growth in the water.

As an added bonus, it is believed that the cooling effect of the water will help keep the panels from overheating, allowing them to operate more efficiently...

Based on research that was conducted last year at UC Merced, the project partners estimate that if 4,000 miles (6,437 km) of California's canals were covered with photovoltaic panels, evaporation could be reduced by up to 82 percent. This would save approximately 63 billion gallons (238 billion l) of water per year.

New Atlas

Solar Panels

Learn more about the Hamilton Lane Strategies

Learn more


The author has current equity ownership in Deere & Co.

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, Hamilton Lane is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of Hamilton Lane.

Recent Content


Weekly Research Briefing: Not a time to stick your neck out

With massive volatility continuing across all financial market assets and significant selling volumes outpacing significant buying ones, now is a time for equity investors to play defense.

Read the Research Article

2022 Private Markets Dashboard

As one of the largest investors and allocators of private markets capital globally, we occupy a unique position within our asset class, partnering with premier GPs from around the world. The Private Markets Dashboard captures the opinions and expectations of a broad group of those managers, offering insight into where the global investment community believes the markets are headed.

Read the Research Article

Lunches with Legends: Redefining Private Markets Leadership

Hamilton Lane CEO Mario Giannini sat down with Prime Quadrant CEO Mo Lidsky on the latest episode of Lunches with Legends, a fireside chat series that spotlights some of the most illustrious individuals in the financial world.

View the Media Coverage

FPO We use cookies to improve user experience, and analyze web traffic. For those reasons, we may share your site usage with our analytics partners.

Learn More