Asian stock markets may suffer losses of as much as 2 percent this Monday as investors shun equities, opting instead for the relative safety of the U.S. dollar and treasuries as a stand-off between Ukraine and Russia threatens to escalate into conflict, investment professionals told CNBC.
"We believe it will be a broad-based sell-off," Naeem Aslam, chief market analyst at Ava Trade, told CNBC on Sunday. "If there is a military action, there could be over 2 percent gap to the downside. Before the markets open, gold and U.S. bonds could rally higher on the back of this and the same goes for the greenback."
The low-yielding yen was in favor in early Monday trading while the Australian dollar fell against its U.S. counterpart. "Buy yen, then buy dollars," advised Simon Derrick, BNY Mellon's Chief Currency strategist on Friday. "If you must buy the pound. Avoid everything else."
Ukraine mobilized on Sunday for war and called up its reserves, after Russian President Vladimir Putin threatened to invade in the biggest confrontation between Moscow and the West since the Cold War, Reuters reported on Sunday.
(Read more: Stories about Ukraine)
Russian forces who have already bloodlessly seized Crimea - an isolated Black Sea peninsula where most of the population are ethnic Russian and Moscow has a naval base - tried to disarm the small Ukrainian contingents there on Sunday. Some Ukrainian commanders refused to give up weapons and bases were surrounded.
"We're witnessing the most seismic geopolitical events since 9/11," said Ian Bremmer, president and founder of Eurasia Group, a global political risk and consulting firm, in a situation update published on Saturday.
Nomura's Senior Political Analyst Alastair Newton was more restrained but believed Putin is nevertheless determined to "haul Crimea back into Russia" and Moscow risks opening up another front by possibly inciting "trouble" in the east of Ukraine where most of ethnic Ukrainians speak Russian as a native language.
"This is going to get very messy," Newton said. "But Crimea isn't Poland and this isn't 1939."
'Nothing Calamitous'
Market professionals expect Asian stock markets - the first to react to the weekend's events - to plunge at the open before re-gaining some composure.
"I don't think people are gonna panic on this one," Mark S. Matthews, Head of Research Asia at Bank Julius Baer, told CNBC in a telephone interview on Sunday. Asian stock markets may tumble by between one to two percent, Matthews estimated, before stabilizing.
The crisis in Ukraine poses "nothing calamitous" for financial markets, argued Matthews. "If it was, Ukrainian bonds would be telling us by now." Ukraine's dollar bonds enjoyed a 7-9 cent rally last Monday but slipped on Tuesday across all maturities.
Still, the duration of the crisis, whether or not it spreads and precipitates Western involvement, may keep the markets on edge and add to investor anxiety at a time when major emerging economies are showing signs of slowing growth while others are also undergoing political stress.
As such, safe-haven inflows may benefit the U.S. dollar primarily but weaken the euro and the Russian ruble while recent attention on the depreciation in the Chinese yuan may fade, strategists told CNBC.
(Read more: Currency markets)
This week's CNBC market sentiment survey results bear this out. Almost two-thirds of respondents (63 percent or 10 out of 16) expect the dollar to gain this week, 31 percent (5 out of 16) expect a decline while just one respondent is neutral.
For some, the fast-evolving events with Russia and Ukraine locked in a stand-off are rekindling memories of the Cold War. "It's like a Tom Clancy novel," said Thomas McMahon, director and CEO of Pan Asia Clearing Enterprise and the former CEO of the Singapore Mercantile Exchange.
"Markets will take a risk-off tone given the Ukraine developments I would imagine," said Khoon Goh, senior FX strategist at ANZ, in emailed comments. Euro will give back recent gains and the will remain under pressure, Goh said. "USD to benefit thanks to some safe-haven demand. Looks like the market's focus will turn away from CNY towards Ukraine (this week)."
Irrelevant
But not everyone agrees that Ukraine will drive wholesale risk aversion and a flight to safety.
"From my perspective - Asia - Ukraine is irrelevant," said Mirza Baig, Asia currency strategists at Deutsche Bank. "There is no common investor base and not much economic exposure.
Markets have moved away from broad risk on/off catalysts from localized blowups - Turkey, Argentina, now Ukraine. I think that continues."
What will matter this week, Baig argues, is the outlook for monetary policy, particularly quantitative easing (QE), "specifically Chinese QE - and maybe European too, depending on what (Mario) Draghi does this week" when the European Central Bank meets to decide on monetary policy.
Gold is likely to emerge as another beneficiary any safe-haven buying though some argue that the dollar's strength will limit gold's price gains.
"Geo-political tension in Ukraine is proving a mixed blessing for gold," said Ross Norman, CEO of Sharps Pixley in London. "It is positive as safe-haven money flows in but it is also flowing into the dollar which is having a depressive effect on bullion prices."
That's a view supported by CNBC's sentiment survey which shows more than half of those polled by - 56 percent (10 out of 18), forecasting gold declines this week although almost 40 percent (7 out of 18) say gold will gain.
Gold bulls, however, say bullion will shine despite the drag of a stronger dollar.
"The plunge in the Ukrainian hryvnia, the risk of bank runs, not to mention the risk of contagion and rising geo-political tensions between Russia and the West over developments in Ukraine should be supportive of gold," said Mark O'Byrne, Founder and Executive Director of Dublin-based bullion dealer GoldCore.
"Tail risks have increased and could lead to a renewed safety bid for gold in the coming weeks."
Edmund Moy, Chief Strategist at Morgan Gold and a former director of the U.S. Mint added: "There's "a lot more on the risk radar than a month ago. Ukraine has the risk of spinning out of control in the near term. Because it is a substantive challenge to Russia's - and Putin's - expansion plans, Russia may be forced to use a heavy hand."