Even before Russia’s invasion of Ukraine, the global economy faced a unique set of challenges that the conflict only exacerbated.
“The war in Ukraine is another dark cloud on the horizon that is contributing to uncertainty in the financial markets,” said Colum McKinley, senior portfolio manager with CIBC Asset Management.
As interest rates continue to move higher to combat soaring inflation, McKinley looks for opportunities to position his portfolios to account for these changes in the economy and the geopolitical sphere.
Looking at the war specifically, the aggressive sanctions imposed by the world against Russia have sent energy prices soaring. According to McKinley, the sanctions will likely have a “lingering effect” on commodities, such as oil and fertilizers.
A report from the World Bank released this week said commodity prices are likely to remain elevated through 2024.
Energy security is increasingly important, McKinley said, which could benefit Canada as a producer of fertilizer and oil. Sanctions against Russia and Belarus are expected to endure, leading to “structurally higher prices” for those commodities and more buyers looking to Canada, he said.
“These businesses are very well-positioned for what is a longer-term, structural change in industry dynamics,” he said.
The conflict has also created opportunities in sectors such as auto parts suppliers, McKinley said. When the war broke out and production in Europe was disrupted, stock prices plummeted. However, McKinley thinks the issues the industry faces will be temporary.
For example, Aurora, Ont.-based supplier Magna International Inc. saw its stock decline this year as the war exacerbated supply chain issues and a shortage of semiconductor chips. McKinley said that’s created an opportunity for investors to buy “a great business facing a transitory issue.”
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