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- The Russia-Ukraine conflict could last into 2024, according to the CIO of Spouting Rock Asset Management.
- Rhys Williams, who's also a former Moscow-based journalist, explained how the market is viewing the war one year on
- "This is an existential war for Putin. It may not be in Russia's interests to continue, but Putin is all in."
As Russia's war in Ukraine passes the one-year mark, markets are already pricing in at least another 12 months of conflict, according to Rhys Williams, the chief investment officer of Spouting Rock Asset Management.
"A drawn out war is priced in, that's what everybody expects," Williams told Insider. Prior to a multi-decade career in asset management, Williams, who speaks Russian, worked in the Moscow office for The London Sunday Times.
"This is an existential war for Putin," he said. "It may not be in Russia's interests to continue, but Putin is all in."
In his view, investors are behaving as if the war will continue well into 2024.
"I don't think either Russia winning or Ukraine winning is priced in, and I'm not sure which would be worse from a market point of view," Williams said. "We can all root for Ukraine, but from a markets standpoint, if Ukraine starts to win that raises the risk of tactical nukes and China getting more involved."
Markets brace for grueling stalemate
Tide of the war swinging in favor of either Moscow or Kyiv will likely spark a reaction among global investors, the veteran exec said.
"There will be a sell-off in stocks and probably a flight to bonds in a scenario where either Russia wins big, or loses big," Williams maintained. "Both raise risks. Neither side can agree on a solution right now."
He doesn't expect a steep sell-off in stocks like last year, but instead says equities will be mostly flat as companies are more fairly valued now after 2022's rout.
"The chances of another 2022 are very remote," Williams said. "Things will have to really break terribly for that. But the chances that the market is up 30% is also I think remote."
Defense stocks could climb higher amid expectations of a prolonged conflict, Williams noted, and every country will likely increase defense spending in 2023, especially those close to Russia and China.
Meanwhile, another market consequence has been extreme volatility in energy prices, and that could continue in the second year of the war.
Brent crude, the international oil benchmark, has reversed from last year's highs of roughly $127 per barrel, and is currently hovering at about $82. It's possible that China's reopening sends prices higher this year, Williams said, though that could be exacerbated by fluctuations to Russia's energy output.
To Williams, the West's sanctions against Russia may deliver longer-term downside to the dollar.
Since the US froze Russian dollar savings, Moscow has turned to other currencies for trade. A January Bloomberg report said Russia's $45 billion stash of Chinese yuan has been helping it weather sanctions and make up for losses in energy revenue.
While the impact will likely remain minimal over the next one to two years, Williams forecasts that if things continue in this direction, the dollar could gradually lose its dominance over the next decade.
"If Ukraine really does start to win, it becomes risky for the market," he said. "But if Russia wins, that makes markets very nervous too. I do think both cases are unlikely, and that a stalemate is the likely case, which has more or less been priced in."