The crisis between Russia and Ukraine has now entered its third month. By all accounts, it is a conflict that changed the world immeasurably overnight, and one that looks set to continue for some time, says Giles Coghlan (pictured), chief currency analyst at HYCM.

Politically, military actions have already had a significant impact on international relations and trade agreements - one might expect the global economy to face similar upheaval.

Certainly, the global stock markets suffered a significant hit when the invasion began in February - the FTSE 100 shed 250 points in one day, and the S&P fared little better, dipping to 13.4% in the year as a result. The intervention has also exacerbated pre-existing energy, supply-chain, and inflation issues, so it is safe to say that investors have had plenty to consider over the past few months.

With the flames of war still burning, now seems like an appropriate time to re-evaluate the investor response to the situation, and how many have adapted their strategies.

Investors are taking a ‘wait and see' approach

 The answer to this initial question is - not many.

According to research conducted on behalf of HYCM, just 14% of investors said that they are monitoring the conflict when assessing their investment strategies. Even fewer (10%) have altered their strategy, suggesting that many in the investment world expect that the situation - and indeed, its effect on the markets - will eventually cool.

A glance at market history suggests that while geopolitical crises can and do influence the global financial landscape, moments of conflict like these do not tend to have quite the impact that many may expect. Between 1939 and 1940, for instance, the Dow was up by 50% despite the breakout of the Second World War. Likewise, more recently, bleak moments of international conflict such as the bombing of Syria in 2017, have resulted in a modest market response.

In the current conflict, admittedly, escalation and further changes to international relations are likely. Therefore, it is perhaps wise that investors are adopting a ‘wait and see' approach.

Overall, investors are taking the moral high ground with their investments

While the majority (67%) of investors believe consumers and fellow investors will boycott businesses that continue to operate in Russia, 44% said that they will reconsider investments that are exposed to Russia. As such, it seems that despite the consequences of severed trade ties between Russia and the West, which the majority (69%) believe is irreversible, investors are prepared to reject Russia ‘remainers', even if their portfolios are potentially at risk.

That said, 37% of investors would mitigate the potential risk of economic fallout caused by a protracted conflict by investing in ‘safe haven' assets such as gold, currencies, defensive stocks and government bonds. This indicates that many are weighing up the most effective hedges to implement, should they need to change their approach.

From nukes to ‘net-zero' - reconsidering ‘ESG'

 Even before the invasion, the global energy markets have been turbulent, as the wholesale and consumer prices of natural gas, coal and electricity have soared. Initially caused by a combination of post-pandemic recovery, extreme weather and fractious geopolitics, this conflict has only made matters worse.

Despite this, the majority (59%) appear to be optimistic, suggesting that continued uncertainty will prompt investors to consider green metals, nuclear power, and ‘cleaner' energy stocks, in a nudge towards a net-zero future.

In the short-term however, Russia's departure from the global energy market has caused a deficit that is likely to be filled with increased investment in ‘dirty' energy, like coal and fossil fuels for some world powers. As such, exactly half (50%) believe that net-zero targets will take a hit.

More generally, the great debate around the global energy market coincides with a wider discussion about what constitutes a legitimate environmental, social and governance (ESG) investment. Before the intervention defence stocks were typically excluded from ESG funds because of their involvement in the arms trade - in fact, the EU even called the defence sector "socially harmful".

In the last few weeks, the discussion has started to shift, as many in the investment world have argued that investment in defence should be used to aide countries with limited military resource. Consequently, many banks are rethinking their position on defence stocks and ESG funds.

This news will be welcomed by a quarter (25% of investors), who say that they will increase their investments in defence stocks if the conflict escalates, while a further 17% said that they should be accepted as legitimate ESG investments.

For now, the future course of the war remains unclear, and the threat of a wider conflict will play on the mind of civilians and investors alike as global powers amp up their rhetoric. That said, the market reaction thus far should give investors some sense of optimism - but this should be coupled with a healthy dose of caution.

Giles Coghlan is chief currency analyst at HYCM