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First Corona, now Ukraine: Market cycles are getting more severe

Luxembourg, 09 March 2022 – “Overall, market cycles are becoming shorter and more severe in their forms”, said Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM. A tendency that has already been evident during the corona crisis, and the market might behave similarly in the current Ukraine war. “Panic is therefore a bad advisor”, Gerlinger pointed out.

At this point is difficult to gauge how long the Ukraine war will last and what consequences it will entail. When the price of gas goes up by 60 per cent in a single day and in general rises from its low of 3.375 euros on 22 May 2020 to a record of 345 euros, then the term exaggeration is a gross understatement. After all, Russia has not announced the halt of gas supplies yet, nor has the West imposed a boycott of Russian energy.

Even if the war in Ukraine were to end soon, the sanctions would likely remain in place for some time as a precautionary measure. In the global economy, Russia does not play a major role. In terms of GDP, Russia is not one of the big players and only on a par with the Benelux countries. The country is, however, sitting on a large number of raw materials that the West urgently needs.

Looking at the economic situation, there are worries that not much will remain of the economic upswing that has existed since corona. There may be new supply shortages, drastically collapsing consumer spending and, above all, extremely high energy prices, which would strangle the economy and lead to a new profound recession. As a result, there would be a slump in demand and in the longer fundamentally sustainable commodity prices. “There is a good chance that there might be just another brief but sharp recession, in the wake of which prices across the board – including energy prices – would plummet significantly”, Gerlinger said.

Inflation, initially overshooting due to energy prices, would also fall sharply. And the upswing, which is abruptly slowed down right now, would quickly pick up speed again. Inflation would then no longer be an issue, and the next economic upturn would be waiting in the wings.

Government bond yields have firmed up in recent days, while equities have fallen sharply. As in almost every crisis, European stocks lost more than average. “The war is taking place in Europe after all, and the geographical proximity to Ukraine is worrying”, Gerlinger cautioned.

In such an environment, however, It is a matter of luck to time stocks correctly. In the spring of 2020, a brilliant stock market boom also started shortly after the outbreak of the pandemic, although the fundamental environment had actually sent different signals. “Therefore, our recommendation is yet again: panic is a bad advisor”, said Gerlinger.

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