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Last updated: 25 Feb 2022
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Invasion of Ukraine – Market uncertainty

Russia has dramatically escalated the situation in Ukraine, launching a full-scale invasion of the country. Here, we discuss concerns for investors, while recognising that it's sadly already cost lives and has the potential for grave humanitarian consequences.
Market reaction

Market reaction

Markets’ initial reaction yesterday was stark. Unsurprisingly Russian stocks saw dramatic falls, with the Moscow Exchange down more than 35% at points yesterday. UK and European markets saw 3 - 5% drop offs on Thursday morning and rises in oil and gas prices hit the headlines once again. These changes reflect the immediate economic concern and uncertainty. However, some of this initial concern looks to have been short lived as US markets finished the day higher than they started and Russian, UK, and European markets all started with rises on Friday.

Market volatility around the invasion, and its knock-on effects, is unlikely to be over. It’s clear from past crises that markets don’t react well to uncertainty. However, they tend to have very minor consequences for their long-term prospects. As demonstrated below with references to some of the more notable geopolitical and military events over the past 40 years, downturns are an inevitable part of investing, but they do little to change the overall picture.

alt

Past performance is not a reliable indicator of future returns.     

Source: Morningstar Advisor Workstation. 

Notes: Global equities = MSCI World USD Index, gross of taxes and fees and reported in USD.

Over this period, many of the more prominent market movements have not been geopolitically driven. Time and time again, whether confronted with financial crises, pandemics, or war, global equities have shown to be an effective long-term hedge against inflation and produce favourable results over cash. When diversification to portfolios is added, a further element of protection against the sharpest fluctuations can also be achieved.

About the author

Seth Dowley

+44 (0) 20 7710 2615
dowleys@buzzacott.co.uk
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Market reaction

Markets’ initial reaction yesterday was stark. Unsurprisingly Russian stocks saw dramatic falls, with the Moscow Exchange down more than 35% at points yesterday. UK and European markets saw 3 - 5% drop offs on Thursday morning and rises in oil and gas prices hit the headlines once again. These changes reflect the immediate economic concern and uncertainty. However, some of this initial concern looks to have been short lived as US markets finished the day higher than they started and Russian, UK, and European markets all started with rises on Friday.

Market volatility around the invasion, and its knock-on effects, is unlikely to be over. It’s clear from past crises that markets don’t react well to uncertainty. However, they tend to have very minor consequences for their long-term prospects. As demonstrated below with references to some of the more notable geopolitical and military events over the past 40 years, downturns are an inevitable part of investing, but they do little to change the overall picture.

alt

Past performance is not a reliable indicator of future returns.     

Source: Morningstar Advisor Workstation. 

Notes: Global equities = MSCI World USD Index, gross of taxes and fees and reported in USD.

Over this period, many of the more prominent market movements have not been geopolitically driven. Time and time again, whether confronted with financial crises, pandemics, or war, global equities have shown to be an effective long-term hedge against inflation and produce favourable results over cash. When diversification to portfolios is added, a further element of protection against the sharpest fluctuations can also be achieved.

Looking ahead

Looking ahead

Uncertainties remain. The impact that new sanctions on Russia will have on the West’s own economies is not yet fully known, nor are Putin’s next steps or the extent of possible further Western actions. There is reliance on Russian energy and Ukrainian agricultural produce in some European nations. Markets have already begun to price in some expectations including the inflationary pressure presented by the surge in wholesale energy prices. However, as is always the case while markets find their way through uncertainty, timing decisions can be fraught with danger and long-term investors with diversified approaches can take comfort knowing that persistence should reward them.

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