Coming off the back of the Omicron wave, increased interest rates and spiralling inflation, the war is likely to lead to further turbulence.

What does history tell us?

During recent wars in the past 20 years, investors have experienced some volatility. There is precedent for this situation which gives us some confidence that markets will similarly ride out this storm. During the Crimean annexation of 2014, markets experienced some fluctuations, but as the crisis subsided, global equities bounced back and soon resumed their upward trend. Similarly in the US-led invasion of Iraq in 1991 and the Iraqi invasion of Kuwait in 1990 markets dropped but soon stabilised afterwards.

Impact on global equities

Following Russia’s declaration of war nearly $1 trillion was wiped off the value of the global stock market. This accelerated a drop in the major indexes as investors have become concerned about major central bank rate hikes.

The tech-heavy U.S. Nasdaq flirted with “bear” market territory, as a 20% fall from the last peak is known, but U.S. markets ended up closing higher despite all the damage elsewhere and were making more ground on Friday 25th.

The S&P 500 also reacted, dropping 10% but quickly rallied.

Moscow’s MOEX exchange slumped a record 33% as the impact of western economic sanctions against Russia hit.

Impact on commodities and bonds

Gold, oil, gas and government bonds have all seen sharp increases in the past few days as investors seek safe havens for their cash. A possible supply disruption in oil caused crude prices to surge above $100 a barrel, and prices remain volatile. Russia is the world’s second largest crude oil producer and provides around 35% of Europe’s natural gas. Sanctions imposed by the West on banking and shipping of Russian oil and the decision by Germany to halt the certification process for Nord Stream 2, the new pipeline intended to carry Russian gas to European consumers fuelled the price increase.

In addition, wheat has also seen its highest price since 2008; Russia and Ukraine are two of the world’s biggest producers. This increase will further exacerbate food inflation – a major global concern following the pandemic.

Impact on inflation

With inflation running at much higher rates than pre-pandemic, the conflict will likely put further upward pressure on the cost of living. Economists had been expecting that the peak in inflation was imminent. However, this peak could get pushed back if oil, gas and other commodity prices continue to rise due to the Ukraine crisis.

What might happen next?

Whilst we can only speculate at this point as to what Putin will do next and how and when this crisis will abate, history teaches us that we can be confident that markets will bounce-back once tensions subside. Essentially, adopt a keep calm and carry on approach to investing. Geographically diverse equities in long-term growth companies, spreading risk across asset classes including fixed income remains our preferred investment strategy for the foreseeable future.

Advice from Blacktower Financial Management

The world is an unpredictable place and we can’t know what’s going to happen next. That doesn’t mean we shouldn’t make plans for our secure financial future. Our wealth management service provides a dedicated advisor to help you manage your retirement wealth. We’ll work in partnership with you to identify the best options for your savings and investments and we’ll regularly review your financial position to help you achieve maximum return. Contact one of the representatives at our Algarve office today for your free no-obligation discussion.

Blacktower in Portugal

Blacktower’s offices in Portugal can help you manage your wealth to your best advantage. For more information contact your local office.

Manuela Robinson is the Associate Director of Blacktower in the Algarve, Portugal, with offices in Quinta do Lago and Cascais.

Blacktower Financial Management has been providing expert, localised, wealth management advice in Portugal for more than 20 years. We can help with specialist, independent advice on securing your financial future. Get in touch with us on (+351) 289 355 685 or email us at manuela.robinson@blacktowerfm.com.