Crimean crisis: not enough to slow down European indices

Press conference by Michel Barnier, Member of the EC, on the adoption by the EC of a company law and corporate governance package

Two months and 19 days have passed since the commencement of the international crisis between Russia and Ukraine. Starting with the Ukrainian revolution which resulted in the President Viktor Yanukovych’s deposition and continuing with the formation of an interim government, Ukraine is now facing one of its most severe “battles” in its after-Soviet history. Europe and especially the European stock exchanges cannot remain unaffected by this crisis.

Main European indices at a glimpse

Germany is represented by the Deutsche Boerse AG Stock Index DAX which consists of 30 German blue chip stocks traded on the Frankfurt stock exchange. DAX 30 was 9708.94 on the 24^th of February when the crisis began and 9607.40 on the 8^th of May. This means a total decline of 1% while experiencing several ups and downs during the aforementioned period. If we take a closer look at the past 3 month’s trend, it is clear that the index is in a downward movement with the possibilities to climb up to past levels more likely.

CAC 40 Index reflects the 40 largest equities listed in France and is the main indicator of the Paris market. This Index showed a rise of 2% and a slight upward trend during this period.

FTSE 100 Index is a capitalized-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange. We observe a decline of 0.38% where FTSE 100 closed at 6865.86 on the 24^th February and 6839.25 on the 8^th of May. Furthermore, the index’s route was downward till the 15^th of April but was moving upward for the rest of the period. That is not strange but connected to the crisis due to the fact that the Ukrainian parliament declared Crimea as a territory temporarily occupied by Russia at this specific date (April 15th).

An overall view of the European stock exchanges is reflected in the STOXX Europe 600 Index which is derived from the STOXX Europe Total Market Index. The STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. In particular, STOXX 600 was 338.19 on the 24^th of February and 339.56 last Thursday. Thus an increase of 0.4% during this period mirrors the small but positive situation that is prevailing in Europe.

European indices appear more stable than Russia’s index

If we include in our analysis the main indices of Russia and Ukraine, we can come up with more conclusive results. On the one hand, Ukraine’s equities Index climbed from 933.91 to 1075.97 in the weekend before the crisis to close at 1101.91 on last Thursday’s session. On the other hand, MICEX Index (Russia) fell 7.9% in the period investigated, from 1489.01 to 1371.42. It is very interesting though the fact that it experienced a huge drop of 13% in only 8 days (24/02 – 03/03). The two opposite movements of the two indices in just a few days were purely affected by the beginning of the Crimean crisis.

Overall, we see that the main European indices, except for the DAX 30 which has been influenced more till now, seem to have a long-term trend to go back to the pre-Crimean crisis. That implies that they are not affected to a great extent by this political turbulence or that there are other factors that keep these indices in a steadier course. However, the indices of the countries involved are highly affected by the events that are taking place in both countries. We observe that especially Russia’s index drop of 118 points compared to its pre-crisis levels.

Selling may not be the best option for the moment

Judging from what we have already seen, we can say that this is not the time to sell European stocks. Investors should hold and not be frightened by the unstable political environment of Ukraine. This is also supported by past geopolitical crises aftermath where in the end everything comes back to normal, the market recovers and reaches levels that are higher than the ones that were before crisis. Consequently, it is better for investors to rebalance their portfolio in a less frequent basis in order not to be influenced by the short-term events and face harsh losses.

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