Fear of war reigns supreme on the financial markets.

On Monday, a sell-off sent stock prices around the world plummeting.

The Dax fell by more than 3 percent to 14,945 points during trading on Monday.

The other European share indices also went down.

In the afternoon there was a certain calm, which caused the Dax to trade above the 15,000 point mark again.

This was initiated by Russian President Vladimir Putin and Foreign Minister Sergey Lavrov, who signaled their continued willingness to negotiate with the West.

Markus Fruehauf

Editor in Business.

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Inken Schoenauer

Editor in business, responsible for the financial market.

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Some investors may also remember an old stock market adage: “Buy when the guns are thundering.” It says that political crises only keep the markets under control for a short time, but that prices then recover quite quickly.

In such a case, the short-term distortions on the markets should be used as entry levels.

"Fear Barometer" shot up

But initially, investors were much more nervous about the conflict between Russia and Ukraine.

This could be read on Monday from a key figure: the V-Dax.

This measures the unrest on the market and is considered a “fear barometer”.

He shot up by almost 38 percent.

This means that investors are prepared for high price fluctuations.

Nevertheless, the V-Dax was almost three times as high in spring 2020, i.e. during the Corona crash.

The stock market is not yet in a panic mood.

Nevertheless, the increase shows that the Russian President Vladimir Putin has downright shocked the markets with his unyielding course towards Western mediation efforts.

In addition, the severe sanctions announced by the NATO countries in the event of an attack on Ukraine will also cause burdens, for example in the form of rising energy prices.

Russia is an important supplier of oil and gas.

The European natural gas futures contract rose by up to 13 percent to EUR 84.20 per megawatt hour.

Fears of possible supply disruptions drove the oil price towards the $100 mark.

Further increases in energy prices due to geopolitical conflicts could intensify the already rampant fears of inflation in western industrialized countries and slow down growth.

"While the focus remains on diplomatic efforts to avoid escalation, the failure to find a diplomatic solution so far has prompted a low-risk sentiment," Unicredit analysts wrote.

On the financial markets, people like to speak of “risk-off mode” derived from English.

Investors then sell risky assets, which include stocks, and turn to safe havens like government bonds.

This could be observed on Monday: the price gains on the ten-year federal bond pushed its yield down to 0.234 percent.

On Friday, inflation concerns and the expectation of rising interest rates had driven the yield to 0.3 percent.

High Quality Bonds

The big banks also recommend investors to get out of risky stocks.

Shortly after the US government warned of an impending Russian invasion of Ukraine, Mike Wilson, US equity strategist at US bank Morgan Stanley, advised on a defensive approach and thus on high-quality bonds.

This is generally understood to mean stocks with a high level of dividend security.

Nevertheless, professional investors are only preparing for temporary fluctuations on the stock exchanges.

Wealth managers at UBS Global Wealth Management on Monday advised clients to manage the current downside risks while preparing for a recovery later in the year.

Bank shares, which have been among the winners so far this year, came under significant pressure on Monday.

In particular, the titles of institutes with large business in Russia were sold: the share price of the Austrian Raiffeisen Bank International fell by 8 percent at times.

The stock of the French Société Générale fell by up to almost 7 percent.

But Deutsche Bank's title also lost 6.5 percent of its value at the daily low.

"Keep Calm"

"Keep calm" applies to your own depot, says Christian Kahler, chief investment strategist at DZ Bank of the FAZ. Selling individual stocks in a hectic rush is not a good idea.

Political events rarely play a dominant role on the stock market for long, even if it is still unclear how the conflict in Eastern Europe will develop.

However, companies that export their goods to Ukraine would still have to live with a lot of uncertainty.

This could apply, for example, to companies in the automotive industry.

However, the capital markets would be determined even more by how liquidity will behave in the future than by the Ukraine crisis.

"And the central banks are now taking the money off the table," says Kahler.

As is well known, the American Federal Reserve is already eyeing the first rate hikes.

In addition, there is a certain degree of uncertainty as to how the economy will develop in Germany, but also in other countries.

And thirdly, the sentiment should not be neglected, i.e. the mood in which investors are currently.

Many investors have lost a lot of money with tech stocks in the past few weeks and months.

Since the market confidence is currently very shaken.