Ukraine-Russia conflict: How should emerging market investors respond?

The recent escalation in the Ukraine-Russia conflict has sent shockwaves through global markets, particularly impacting emerging market investments. Charlie Robertson, Global Chief Economist at Renaissance Capital, shed light on the implications of the conflict on investment strategies in emerging markets during an interview with CNBC Africa's Tania Habimana. Robertson highlighted the challenging environment for emerging markets, with various factors like China's property issues, concerns about rising interest rates by the Fed, and inflation casting a shadow over the investment landscape. The recent developments in Ukraine and Russia have added geopolitical uncertainties, making it even more difficult to pitch emerging markets as the go-to investment destination. Specifically, the conflict has had a significant impact on Russia, with sanctions making it nearly impossible to hold Russian debt and causing Russia's share of emerging market equities to plummet. Investors have been quick to reallocate their assets to less volatile markets, leading to a swift decline in Russia's market share. While Russia bears the brunt of the conflict, other emerging markets like Brazil, South Africa, Nigeria, and Ghana have seen some benefits. Brazil's commodity exposure has become more attractive in a time of global inflation, leading to a surge in its currency. South Africa and select African countries stand to gain from higher oil prices amidst the geopolitical tensions. However, the situation spells trouble for countries heavily reliant on Russian and Ukrainian food exports, such as Egypt and North Africa. With a significant portion of global wheat exports at stake, rising food prices could exacerbate inflation pressures in these regions. Additionally, countries dependent on oil imports, like Kenya and Ethiopia, face challenges amid the spike in energy prices. In terms of navigating the conflict, Robertson emphasized the need to acknowledge Russia's influence in Ukraine as a geopolitical reality. While the West continues to trade with Russia, sanctions targeting key technological sectors, such as semiconductor exports, could isolate Russia further and impede its progress in advanced industries. Moreover, the dynamics of the Russia-China investment relationship paint a one-sided picture, with China predominantly benefiting from raw material imports from Russia. Despite initial optimism about Chinese investments in Russia, the current trajectory suggests a lopsided trade dynamic where China extracts value from raw materials and sells back processed goods, potentially leaving Russia in a vulnerable position. As investors grapple with the evolving situation in Ukraine and Russia, the broader impact on emerging markets remains a key concern. Rising global inflation, supply chain disruptions, and geopolitical tensions continue to shape investment decisions, underscoring the need for a nuanced approach to navigating the complexities of the current landscape.