Over recent weeks we have all been horrified at the situation that has developed in Ukraine. There has already been a significant human cost, with reports of many hundreds of deaths and people displaced from their previously peaceful homes. Our thoughts are with the people of Ukraine for an end to the conflict and a resolution that sees further unforgivable suffering avoided.
During times of uncertainty like this, stock markets generally become more volatile as investors consider the potential implications for markets and companies. Given the dire consequences of the invasion of Ukraine by Russia, and fears of a wider drawn-out conflict between Russia and the West, investment markets have, particularly in the last fortnight, suffered significantly. As you may be aware, Russia is a significant supplier of gas and natural resources to Europe, so one of many economic implications of the conflict is that it will exaggerate the already high energy prices we have seen this year, with a consequent impact on inflation moving higher still.
Many investors will naturally be nervous about their portfolios, but our advice to our clients always remains consistent in these times: keep focused on your long term goals and remember that this type of volatility is a normal part of the process of investing.
In a recent study by Glenview Trust Co's Chief Investment Officer Bill Stone, he examined market moves around past geopolitical crises for clues as to what investors might expect. Stone looked at 29 different geopolitical crises starting with WWII and found that, on average, stocks were higher three months after a geopolitical shock, and following 66% of events, they were higher after only one month.
"The odds that stocks will be higher increases as time passes after the event. In addition, stocks sometimes jump sharply after a crisis, so getting out of the market could have significant opportunity costs", Stone cautioned.
Of course, there have been outliers in the form of more severe spill-overs into the economy and financial markets. For example, during WWI New York Stock Exchange (NYSE) was closed for about four months, and stocks fell by approximately 20% once it reopened. Then following the 9/11 attacks in the United States, financial markets did not reopen until September 17, when the S&P 500 fell almost 5% in a day.
So while investors should be prepared for additional volatility, history does seem to suggest that stock declines associated with geopolitical fears are generally "a temporary setback and an opportunity to buy at discounted prices".
If we invest money for you, you may already have seen some updates from our investment teams about our positioning and strategy. Our portfolios tend to focus on funds that invest in quality companies that should be resilient through challenging times like this. We do not intend on making any major changes to our long term convictions as a result of the crisis, and we are confident that our clients will be rewarded for our patience in due course.
If you have any specific queries about your assets or portfolios, please do contact your Adviser as usual. In the meantime, hopefully, this update has been helpful for you to understand our general advice and positioning during times of uncertainty.