Europe: Ukraine invasion fears send stocks to 9-month lows

[BENGALURU] European stocks dived to 9-month lows on Thursday (Feb 24), with banks and automakers bearing the brunt of the selloff, after Russia launched an all-out invasion of Ukraine.

The pan-European Stoxx 600 index tumbled 3.3 per cent to its lowest since May 2021, marking a correction, or 10 per cent drop, from its record high in January.

Investors globally rushed to the relative safety of gold and government bonds and dumped equities after Russian forces invaded Ukraine by land, air and sea in the biggest attack by one state against another in Europe since World War Two.

US President Joe Biden and other Western leaders promised tough sanctions in response.

European banks most exposed to Russia, including Austria's Raiffeisen Bank, UniCredit and Societe Generale, slumped between 12.2 per cent and 23 per cent, while the wider banking index fell 8.2 per cent, its worst day since the pandemic-fuelled selloff of March 2020.

Major regional indexes including France's CAC 40, Germany's DAX and Britain's FTSE 100 each fell close to 4 per cent as investors feared the potential impact of severe Western sanctions on Russia.

"The war, sanctions and the likelihood of meaningful retaliation by Russia together will likely cause a material global recessionary shock," Eurasia Group analysts said.

"While the direct costs of the war are centred in Ukraine and Russia, sanctions on Russian banks and trade will likely cause meaningful disruptions to global trade and financial relationships with far-reaching effects."

A gauge of volatility in euro zone equities eased at the close of the market, after earlier touching its highest since October 2020.

Europe's oil and gas index slipped 0.3 per cent, falling the least among sectors, as oil prices surged over 6 per cent, pushing Brent crude past US$100 a barrel for the first time since 2014.

The sector remains Europe's top performer this year with a 7.6 per cent gain.

Meanwhile, renewable energy firms such as Orsted, Vestas Wind Systems and EDP Renovaveis surged over 10 per cent, as the group was seen as benefiting from a shift to renewable energy as gas prices soar.

Defence stocks were also a bright spot, with UK's BAE Systems, Germany's Re-install and France's Thales gaining between 3.4 per cent and 5.2 per cent.

"Whether there will be a full-blown war or not, the simple strategy is to bet on a spike in inflation," said Yuan Yuwei, partner, Water Wisdom Asset Management in Hang.

"That means buying oil and agricultural products, and shorting consumer shares and US growth stocks."

European Central Bank policymakers were gathering on Thursday for an informal get-together likely to now turn into a crisis meeting as the Russian invasion of Ukraine threatens to derail regional economic growth and complicate the ECB's path out of negative interest rates. REUTERS