Bernstein has named a number of stocks to navigate the heightened geopolitical and inflationary risks amid the Russia-Ukraine conflict. "Clearly, recent events in the Ukraine have heightened geopolitical risks, and the risk that inflation worsens from here. This warrants a more cautious near-term stance on equities, but we remain overweight," Bernstein's analysts, led by Sarah McCarthy, said on Feb. 28. Russia's incursion into Ukraine initially spooked global equity markets, but market reaction has been relatively muted in recent days — mirroring what's happened in the past, the bank said. "Equity markets recovered quickly from the annexation of Crimea in 2014 and has a history of doing this in other Russian conflicts. If this remains a localized conflict, then the market recovery is likely to continue," McCarthy said. Stock picks The bank noted that Europe's recent underperformance has presented opportunities for investors, and screened the 300 largest stocks in the MSCI Europe Index to identify its top picks to navigate the current conflict. Its "European Quality at a reasonable price" screen turned up a raft of stocks across a variety of sectors, including healthcare, industrials, materials, technology, consumer staples and more. The bank's top overweight-rated picks are French luxury goods firm Kering , Nestle , Roche and Brussels-based biopharmaceutical firm UCB . Dutch information services and software provider Wolters Kluwer , Swedish industrial products manufacturer Assa Abloy , Chilean mining firm Antofagasta and German software giant SAP also make the bank's list. Risks remain Bernstein highlighted that Europe now faces a "higher risk" of stagflation — when an economy experiences stagnant activity and accelerating inflation at the same time — as energy prices soar, but said it remains "too early" to ascertain if stagflation will take hold in the region. As such, McCarthy said the path to interest higher rates remains "reasonably intact," given that high inflation has somewhat curtailed the ability of central banks to hold back on raising rates. Against this backdrop, Bernstein outlined its investment strategy. "Longer term (beyond H1 [first half] 2022) we prefer strategies which position for an environment of slowing growth, where inflation has started to moderate, and where bond yields are not rising," McCarthy wrote. "The recent underperformance of Europe in particular throws up some opportunities on an absolute level."
A Ukrainian service member is seen, after Russia launched a massive military operation against Ukraine, at a check point in the city of Zhytomyr, Ukraine February 27, 2022.
Viacheslav Ratynskyi | Reuters
Bernstein has named a number of stocks to navigate the heightened geopolitical and inflationary risks amid the Russia-Ukraine conflict.