Hello to everyone, except Vladimir Putin.
It is now more than a month since the Russian army has engaged in basically a full-scale war with Ukraine. And much to Russian President Vladimir Putin’s disbelief – the dogs are not only barking back at him, but they are also biting!
Russia invaded Ukraine for the first time late in February, financial markets pulled back on a global scale in search of safety.
Talk about being on the wrong side of a round of Russian Roulette – the biggest loser globally was the Moscow Exchange, they shredded off about 17% in value since the invasion of Ukraine started. To add to that, the ruble lost almost 30% of its value relative to the USD, which came after the sanctions that were imposed on Russia by various international institutions, companies, and governments.
Irrespective of whose side you pick in Ukraine, you will most certainly have one common denominator when it comes to your investing peers: you would like to be invested in a portfolio that can stomach the dreadful international news headlines while also cashing in on opportunities coming up along the way. Amid the chaos, opportunities arise.
Markets are not big fans of uncertainty, especially after a two-year pandemic that is still disrupting certain regions. You can certainly be forgiven if you thought the dark Covid clouds were lifting – only to be replaced by new dark clouds, caused by the army of the Communist Russian leader.
Shortly after news headlines confirmed that Russian troops are already performing ‘special military operations’ i.e., basically, starting a war, the Nasdaq gave back almost 3.5% of its returns in a single trading day. But on the same trading day, the Nasdaq recovered by about 5.90%. Now even though this might be an extremely short timeline to use as a reference, it clearly indicates how markets sometimes overreact to news headlines and fear.
Russia and Ukraine’s economies represent approximately 2% of the global economy, so their economic activity is not too material in the greater scheme of things. Only when other regions of Europe, and possibly America and China get involved in Putin’s circus, may we see a knock-on effect on other economies and financial markets.
So in my opinion The war in Ukraine is already largely priced into markets, but Putin’s next move will be the deciding factor. Only if he decides to invade one of the NATO-member countries, will volatility pick up in the short term.
Large-scale geopolitical events, such as the one we are currently faced with, generally do not last extremely long. On average, it has taken markets three weeks to bottom out since the start of a war and a further three weeks to recover the initial losses. Markets are not driven by geopolitical events, but by rather the economic landscape.
Most of us have not lived through a real war in the past, and we still need to see if this invasion will turn into a full-scale war. It no doubt is the biggest challenge to Europe since World War 2. There are however several previous occasions from which we can take valuable lessons to apply to the current situation.
Nathan Rothschild once said ‘Buy when there is blood in the streets.’ Now, this basically means The worse off the market is, the better the opportunities are to profit. It is a proven fact that previous geopolitical occurrences have created extremely great buying opportunities for investors. And as I’ve mentioned, these periods do not often last very long, and you might miss the boat when you are sitting on the side in cash. Another quote, this one from Morgan Housel‘s book: “All past declines look like an opportunity; all future declines look like a risk.”
The pandemic has proved that volatility and uncertainty deliver excellent opportunities in markets. Fear sells; and so, news headlines will always contain fearful messages. Don’t let this influence your decision-making. Expect market volatility and rather use it to your advantage. If you decide to wait for market clarity and for the dust to settle, you will most likely wait until the end of the world.
‘Never bet on the end of the world, it will only happen once.’
I am wishing you an incredible Q2 of 2022! Stay safe!