The invasion of Ukraine has brought inconceivable loss for Ukrainians and significantly increased geopolitical uncertainty for the whole world. It has also had an economic impact and below we have outlined our assessment of the current situation and how Luminor's investment management team is navigating these changes.

What is Luminor's current position?
Luminor's Investment management team has been reducing the level of risk in investment portfolios since the beginning of the year. This was mainly to protect against the likely negative impact of monetary policy tightening. As a result, our overall investments in equities have been slightly lower than usual and we have shifted exposure to defensive sectors which tend to outperform the market in uncertain times.
What is the outlook for financial markets?
Financial markets across the world have reacted negatively, with equity markets selling off and oil price spiking. Western countries have already started to punish Russia’s military action by imposing sanctions and trade restrictions. The situation is developing rapidly and it is impossible to estimate the impact of these actions. However, we expect them to have economic consequences, especially for European countries which are rely on Russian energy supply.
During previous military conflicts financial markets have sold off on the initial negative sentiment and then recovered relatively quickly. However, the crucial factor is the duration of the military conflict itself. While we hope for a quick resolution, it is uncertain how long the conflict will last and how this might impact risk appetite in financial markets. In any case, the imposed sanctions are unlikely to be removed anytime.
How is Luminor reacting to the changes in financial markets?
After careful consideration, we have decided to further decrease the equity allocation in portfolios by reducing exposure to European equities, as the region is most at risk in case of further escalation. In addition, we see a deterioration in outlook for High yield bonds and Emerging market debt and are reducing our exposure there in light of this.
We will continue monitoring how the conflict unfolds, assess the possible economic consequences, and adjust portfolios accordingly. Meanwhile we hope for quick restoration of peace.

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